Personal finance

Credit card interest rates now top 20% on average — here are the 3 best ways to pay down debt

Collectively, Americans owe more on credit cards than ever before. And they’re paying a higher price for it, as well.

The average annual interest rate for credit cards is now near 21%, according to data from the Federal Reserve — marking the highest rate since the Fed began tracking this figure nearly three decades ago.

With rates at record highs, households carrying credit card debt will pay an average of $1,380 in interest alone this year — up from $1,029 last year, a NerdWallet study found.

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As the Fed raises rates to cool inflation, it’s becoming even costlier to borrow. With another possible hike on the horizon, average credit card annual percentage rates, or APRs, could still move higher in the months ahead, according to Greg McBride, chief financial analyst at

Sky-high APRs make credit cards one of the most expensive ways to borrow money from month to month. However, there are some tools and tricks to help pay down that balance.

Here are the three steps experts most often recommend.

1. Avail yourself of balance transfer cards

Cards offering 15, 18 and even 21 months with no interest on transferred balances “can be your best friend on the path to getting out of credit card debt,” McBride said.

“The 0% will shield you from interest charges and further rate hikes, but you’ll still have to do the dirty work of actually paying down the debt.”

Making the best use of a balance transfer boils down to making those payments on time and aggressively paying down the balance during the introductory period.

If you don’t pay the balance off, the remaining balance will have a higher APR applied to it, which is generally about 23%, on average, in line with the rates for new credit.

Further, there can be limits on how much you can transfer, as well as fees attached. Most cards have a one-time balance transfer fee, usually around 3% to 5% of the tab. And one late payment can negate your no-interest offer.

2. Consider a personal loan

Otherwise, consider a debt consolidation loan, which is a type of personal loan that allows you to combine interest from multiple credit cards into one low-interest fixed payment, advised Sara Rathner, a credit cards expert at NerdWallet.

“The interest rate will depend on your credit, but it may be worth it if the cost of interest and fees are significantly lower than what you’re currently paying on your credit cards,” Rathner said.

Currently, those rates are around 10%, on average, still well below what you may have on your credit card.

Further, borrowers may find it simpler to budget for a fixed monthly payment until the debt is paid off, Rathner added. “That can be easier to wrap your head around.”

3. Employ a debt-payoff method

Most experts also recommend coming up with a strategy to stay motivated. The two most common are the avalanche method and the snowball method.

The avalanche method lists your debts from highest to lowest by interest rate. That way you pay off the debts that rack up the most in interest first.

Alternatively, the snowball method prioritizes your smallest debts first, regardless of interest rate. The idea is that you’ll gain momentum as the debts are paid off and that will motivate you to keep going.

With either strategy, you’ll make the minimum payments each month on all your debts, and put any extra cash toward accelerating repayment on one debt of your choice.

“Avalanche will save you more on interest over time, but if your priority is knocking out the first couple of debts really fast to stay motivated, that’s where snowball comes in handy,” Rathner said.

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