U.S. consumer credit card debt has reached a record-high $1.03 trillion, according to the New York Federal Reserve's latest quarterly household debt report released Tuesday. In the second quarter of 2023 alone, credit card balances grew by more than 4 percent, a possible sign that consumers are relying on their cards more than ever to get through a period of relatively high inflation.
But even though credit cards can be helpful tools for building financial security, carrying a balance month to month can quickly become overwhelming and lead to expensive debt and a tarnished credit score. Here are three methods to help you tame those ballooning credit card bills and make being debt-free possible.
1. Debt consolidation
Debt consolidation is a good idea if you have a bunch of unpaid credit card balances across a few different cards. Basically, you take out a personal loan that covers a portion of all of your balances and then make monthly payments on that one loan. This helps to streamline your credit card debt into one monthly payment instead of juggling several. The new loan will still charge you interest, but it's usually at a lower rate than what you'd be paying on your different credit cards.
And unlike the variable interest rate charged by credit cards, the interest on your debt consolidation loan is often fixed, giving you the peace of mind of predictability. LightStream is a top debt consolidation loan provider because it offers same-day funding, fixed and low interest rates (plus an autopay discount), a variety of term lengths and it doesn't charge any origination fees, administration fees or early payoff fees. You'll need good or excellent credit to qualify, though.
LightStream Personal Loans
Annual Percentage Rate (APR)
6.49% - 24.89%* 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.
For those with less-than-stellar or bad credit, consider Upstart, a top personal loan provider that allows applicants with a low credit score or no credit history whatsoever by considering additional factors like education and employment. Upstart also allows you to apply with a co-applicant, so even if you lack a robust credit history you still have the opportunity to receive a lower interest rate. Upstart offers next-day funding and doesn't charge early payoff fees.
Upstart Personal Loans
Annual percentage rate (APR)
6.20% - 35.99%
Loan amounts
$1,000 to $75,000
Terms
36 and 60 months
Credit needed
300 (but may also accept applicants with no credit history)
Origination fee
0% to 12% of the target amount
Early payoff penalty
No
Late fee
5% of the last amount due or $15, whichever is greater
2. Balance transfer credit card
A balance transfer credit card is another way to manage your credit card debt. This type of card offers new users an introductory 0% APR period on balances transferred to the card. During this time, you can focus on paying down your debt without having interest charges adding to your burden. The below balance transfer credit cards offer interest-free periods for 21 months — giving you almost two years to work on your debt payoff:
The Wells Fargo Reflect® Card can help you save on interest charges thanks to its extra generous intro-APR offer on purchases and qualifying balance transfers.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply Now to take advantage of this offer and learn more about product features, terms and conditions.
- 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 17.49%, 23.99%, or 28.24% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
- $0 annual fee.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
- Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.
Balance transfer fee
5%, min: $5
Foreign transaction fee
3%
The Citi® Diamond Preferred® Card is one of the best balance transfer credit cards and also has a generous intro APR offer.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- 0% Intro APR on balance transfers for 21 months and on purchases for 12 months from date of account opening. After that the variable APR will be 16.49% - 27.24%, based on your creditworthiness. Balance transfers must be completed within 4 months of account opening.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
- No Annual Fee - our low intro rates and all the benefits don't come with a yearly charge.
- Buy now and pay later. Split your payment for eligible purchases of $75 or more into a fixed payment with Citi® Flex Pay.
- Get free access to your FICO® Score online.
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Foreign transaction fee
3%
With a balance transfer card, the best way to make the most of its use is to make sure you have a plan in place for how you'll pay off your credit card debt within the interest-free period; otherwise, interest will start accruing after that time is up.
3. Debt relief companies
A third option that's more complicated than the other two solutions is to seek help from a debt relief company. These companies negotiate your debt on your behalf. While the debt relief company is negotiating, you stop making payments on your debt and instead place those funds in a savings account to pay the new amount negotiated between the debt relief company and your creditors.
For credit card debt specifically, we recommend Freedom Debt Relief, which has a program guarantee that refunds fees if settlement and fees are greater than the amount originally owed when enrolling in the program.
Freedom Debt Relief
Minimum debt
$7,500
Fees
Settlement fee is 15% to 25% of enrolled debt. $9.95 escrow account set-up charge and $9.95 monthly service fee
Availability
Not available in Colorado, North Dakota, Oregon, Rhode Island, Vermont, West Virginia, Wisconsin, Wyoming or Washington, D.C.
Highlights
Freedom Debt Relief has resolved over $20 billion in outstanding debts since 2002. It offers free credit card debt relief consultations.
It's important to keep in mind that debt settlement isn't guaranteed, and it also comes with some potential risks: you can hurt your credit score, end up paying extra fees and/or additional taxes when debts are settled and face possible lawsuits.
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Bottom line
Credit card debt can undoubtedly become stress-inducing rather quickly. Because of the high interest rates card issuers usually charge (in addition to late fees), an unpaid balance can quickly balloon into a big problem. Card issuers tend to compound interest daily, too, meaning your interest is added to your principal balance at the end of each day. It saves you money to act now versus later, which is why we recommend either a debt consolidation loan or a balance transfer credit card to make paying off your debt achievable.
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