The average American has four credit cards and if you have more than that, you are likely lowering your credit score or piling up debt. Paying off credit card debt can be a challenge, but with a plan, it’s something that can be done.
Sara Parker with Utah Central, Southwest Community and Heritage West Credit Unions, part of the Chartway Federal Credit Union’s family of credit unions, shares some ideas for cleaning up your credit card debt.
If you have multiple cards and are trying to get out of debt or lower your debt burden, a balance transfer to a fixed rate card is a good option. It’s easy to do and involves taking your outstanding balances on all your cards and transferring them to one card. This is especially helpful if you have retail credit cards that vary between 20% and 30% in interest. A recent survey by Consumer Reports disclosed some typical rates: Target and Walmart: 22.9%, Macy’s: 24.7%, Kohl’s: 21.9%; Cabela’s: from 9.99% to up to 18.26%; Old Navy and Gap: 24.99%. Bank credit cards generally range from 13% to more than 15% in interest. So once you consolidate these balances, you should feel some relief.
Unlike many other financial institutions, the Chartway family of credit unions in Utah – HeritageWest, SouthWest Community and Utah Central – does not charge fees to transfer the balances. So all of these card balances go onto one card with one interest rate. Currently our rate stands at about 9.75% on balance transfers to a fixed rate card.
To understand what your savings would be, someone with $6,700 of credit card debt can pay it all off in two years with a balance transfer at our rate of 9.75% for about $310 a month. If you were trying to pay off $6.700 on a higher interest card at 15% your monthly payment would be $327 and $1,144 in interest or if the card had an interest rate of 30% it would cost $380 in monthly payments and $2,399 in interest.
Credit card reporting agencies like Experian not only consider how many cards you have and the size of the balances, but the number of inquiries made to your credit score. To improve your credit score you might want to consider closing old credit lines. The next time you get asked at a retail store to open a charge card, consider the impact it might have on your credit score and whether or not you really need it.
The bottom line is credit cards can really be beneficial to help us manage our financial situations and even emergencies but they can give us a false sense of security if they are misused.
For more information, visit your nearest Utah Central Credit Union, South West Community Credit Union or Heritage West Credit Union.