Credit card balances in the U.S. have reached a 10-year high, according to Nov. 9 data from credit reporting bureau TransUnion. The average credit card account is now carrying a balance of $6,088, according to the agency, up 15% from this time last year.
Total U.S. credit card debt reached a record $1.08 trillion in the third quarter of 2023, according to a separate report this week from the Federal Reserve Bank of New York, highlighting the effects of both inflation and higher interest rates.
The consequences of credit card debt
Using a credit card can be a great way to protect your purchases and earn rewards. But paying off your credit card balance in full each month is critical. Your balance can grow quickly, negating any of the benefits of using the card — the average credit card had an interest rate of 21.19% in the summer of 2023, according to the Federal Reserve, up from 20.68% in the spring.
Carrying a balance can also increase your credit utilization ratio, the amount of credit you have available compared to the amount you're using. This ratio accounts for 30% of your credit score, credit bureau Experian reports.
Those with the highest credit scores tend to have credit utilization ratios in the single digits, according to Experian, while a ratio of 30% or higher can have a "pronounced negative effect" on your score.
How to pay off credit card debt
If you want to chip away at your credit card debt, here are some of the more effective methods to choose from.
Debt snowball or debt avalanche method
The debt snowball method focuses on making minimum payments on all your accounts and putting any extra money toward the card with the lowest balance. You'll then work your way towards tackling the largest balance. The idea is that paying off a balance in full — even if it's a small one — will help motivate you to keep going on your debt repayment journey.
The debt avalanche strategy, meanwhile, tackles the debts with the highest interest rates first, then focuses on smaller balances. This method can help you save by eliminating the highest interest rates first.
For either method to work, you first need to make a list of all of your debts with their interest rates and balances. Then decide which strategy is right for you and determine how much you can put toward paying off your balances each month. Apps like You Need a Budget (YANB) and PocketGuard can help you create a budget right from your phone.
You Need a Budget (YNAB)
Cost
34-day free trial then $99 per year or $14.99 per month (college students who provide proof of enrollment get 12 months free)
Standout features
Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as the "zero-based budgetingsystem" where no dollar is unaccounted for). Every dollar is assigned a "job," whether it's to go toward bills, savings, investments, etc.
Categorizes your expenses
No
Links to accounts
Yes, bank and credit cards
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
Encrypted data, accredited data centers, third-party audits and more
Terms apply.
PocketGuard
Information about PocketGuard has been collected independently by CNBC Select and has not been reviewed or provided by PocketGuard prior to publication.
Cost
Upgrade to a Pocketguard Plus monthly subscription, for $12.99 per month, or a yearly subscription for $74.99 per year, which broken down equals $6.25 per month giving members an over all 50% savings.
Standout features
Taking into account your estimated income, upcoming expenses and savings goals, "In My Pocket" feature uses an algorithm to show how much you have available for everyday spending
Categorizes your expenses
Yes, but users can modify
Links to accounts
Yes, bank and credit cards
Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
Security features
Major bank-level encryption, PIN codes and biometrics like Touch ID and Face ID
Terms apply.
Debt consolidation
If youfeel like you're drowning in debt, a debt consolidation loan might be the solution. It essentially rolls all your balances into one monthly payment, typically with a lower interest rate. (The average 24-month personal loan carried 12.17% interest in the third quarter of 2023, according to Federal Reserve data, compared to 21.19% for credit cards.)
This can make managing payments much simpler and enable you to pay off your debt faster. Not every applicant is approved for a debt consolidation loan, however, and you could face late fees and further damage to your credit score if you miss a payment.
If you think debt consolidation is the right move, CNBC Select recommends Upstart for those with fair or average credit scores, and LightStream for those with good to excellent scores.
Upstart offers personal loans with fixed interest rates, so you avoid any surprises. In addition, it doesn't charge an early payoff fee and allows users to pay creditors directly. It does charge an origination fee of up to 8%, which is deducted from your loan.
Upstart Personal Loans
Annual Percentage Rate (APR)
7.8% - 35.99%
Loan purpose
Debt consolidation, credit card refinancing, wedding, moving or medical
Loan amounts
$1,000 to $50,000
Terms
36 and 60 months
Credit needed
FICO or Vantage score of 300 (but will accept applicants whose credit history is so insufficient they don't have a credit score)
Origination fee
0% to 12% of the target amount
Early payoff penalty
None
Late fee
The greater of 5% of monthly pastdue amount or $15
Terms apply.
LightStream is a good option for those with good credit scores. It offers loans up to $100,000, with same-day funding available. In addition, LightStream doesn't charge origination, early payoff or late fees.
LightStream Personal Loans
Annual Percentage Rate (APR)
6.99% - 25.49%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Balance transfer
Another way to make headway on your debt is a balance transfer to a 0% APR credit card. During the introductory period, which can be as long as 21 months, these cards allow you to pay down your balance without interest. After the 0% APR introductory period ends, you'll be charged the card's normal interest rate on whatever balance remains, so make sure you can pay off your debt before that happens.
There are some important things to consider, however: A missed payment could end the interest-free period prematurely. And, if you fall back into old spending habits, you risk getting even deeper into debt.There is also typically a fee to transfer a balance, usually between 3% and 5%.
If you think a balance transfer card will fast-track your debt payoff, consider a card with no annual fee, a low balance transfer fee and a 0% introductory period that works for your timeline and budget.
CNBC Select has chosen the Wells Fargo Reflect® Card for its no annual fees and long introductory APR period (with 18.24%, 24.74%, or 29.99% variable APR on purchases and qualifying balance transfers after that introductory period ends).For a balance transfer to qualify for the intro APR, it must be made within 120 days from account opening, and a balance transfer fee of 5% of the amount transferred applies ($5 minimum).
Wells Fargo Reflect® Card
On Wells Fargo's secure site
Rewards
None
Welcome bonus
None
Annual fee
$0
Intro APR
0% intro APR for 21 months from account opening on purchases and qualifying balance transfers.
Regular APR
18.24%, 24.74%, or 29.99% Variable APR
Balance transfer fee
5%, min: $5
Foreign transaction fee
3%
Credit needed
Excellent/Good
See rates and fees. Terms apply.
We also recommend the Citi® Diamond Preferred® Card as a top choice for balance transfers, with a generous four-month window from account opening to transfer balances and 21 months with 0% APR on balance transfers (and a regular variable APR between 18.24% - 28.99% after the introductory period ends).
Citi® Diamond Preferred® Card
Learn More
On Citi's secure site
Rewards
None
Welcome bonus
None
Annual fee
$0
Intro APR
0% for 21 months on balance transfers from date of first transfer; 0% for 12 months on purchases from date of account opening
Regular APR
18.24% - 28.99% variable
Balance transfer fee
5% of each balance transfer; $5 minimum. Balance transfers must be completed within 4 months of account opening.
Foreign transaction fee
3%
Credit needed
Excellent/Good
See rates and fees.Terms apply.
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Bottom line
With credit card balances at a ten-year high, it's worth looking at how much card debt you're carrying and weighing your options for paying it down. After all, cash back and bonus points don't really mean much if you're deep in the red.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products.While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
