How to keep your credit debt low

(NewsNation) – The Federal Reserve on Wednesday raised interest rates to the highest level in 14 years, to a range of 3% to 3.25%, as it tries to control the inflation surge that is making food, shelter, gas and other necessities increasingly unaffordable for everyday Americans.

But that means it will be more expensive to borrow money, placing an additional burden on families who turn to credit to make ends meet.

US credit card debt per cardholder rose to $842 billion earlier this year, with the average cardholder owed $5,769, according to moneygeek.com. The rate increase could mean you pay 0.25% more interest on your credit card bill, CNBC reports.

As credit card interest could soon drive up payments — especially if the Fed lives up to expectations to raise the rate further this year — now is the time to come up with a debt reduction plan. Here are four tips.

Pay for things in cash when possible

Using debit or credit cards can make it difficult to keep track of your daily expenses, depending on American consumer credit counseling.

“With a credit card, these small charges can keep accumulating until the end of the month,” their website says. “Rows and rows of small transactions add up to a surprisingly large bill, and if you don’t pay it on time, even more fees and charges are added.”

On the other hand, although often less practical, studies have shown physically separating yourself from your money can help you save more than paying with a credit card — up to 83% in some cases.

Say “no” to bad debts

If you need to use credit, avoid bad credit, like payday lenders who charge APRs above 30%. Such high interest quickly becomes incredibly difficult to repay, because many achieved during the 2008 financial crisis.

“The loan will usually cost you much more than the value of the loan amount”, financial advisor Trina Patel told CNBC.

Ideally, you want to earn more per month than you owe. But that standard of living is particularly out of reach for many Millennials, who currently have the highest debt-to-income ratio of any living generation due to high student loans and lower comparative salaries.

Wells Fargo has a practice debt to income ratio calculator.

Find a credit counselor

Some nonprofits offer free or discounted prices for credit counseling, says financial columnist Michelle Singletary. This can be especially helpful if you don’t feel comfortable contacting your lender or if you have many different types of loans.

The National Credit Counseling Foundation works like this: Their counselors advocate on your behalf with creditors, helping individuals, homeowners, and small business owners get out of monthly debt, which 62% of Americans carry, according to their data.

Sometimes they can even negotiate a “debt management plan,” where you have a monthly payment that the nonprofit distributes to creditors, depending on the Consumer Financial Protection Bureau. They can also help you try to reduce overall monthly payments.

The NFCC claims to have helped more than one million consumers, 73% of whom have paid off their debt.

When burdened with many types of debt, experts recommend a more methodical approach.

Try debt stacking

As Neale Godfrey writes for Forbes“This method focuses on paying the minimums on your credit cards and allocating the remaining money to paying off the card with the highest rate.”

This type of work takes a lot of discipline and planning, but you save yourself money and stress in the long run by going over the monthly payment.

If your debt is less than 40% of your gross income, one option to consider is debt consolidation, which consolidates multiple obligations into one payment.

However, it works best during times of low interest rates and for people with many high interest loans, according US Bank Financial Education Blog: “If your credit score is not high enough to access competitive rates, you could end up with a higher rate than your current debts.”

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