Credit cards are one of the largest sources of consumer debt, along with mortgages, student loans and auto loans. But unlike other common forms of debt, credit cards typically come with high interest rates and steep annual fees.
Between 2018 and 2020, Americans paid $120 billion in credit card interest and fees each year, according to the Consumer Financial Protection Bureau (CFPB). That's roughly $1,000 per household, which is a hefty price to pay for the convenience of credit card spending.
Of concern, credit card debt is on the rise — revolving credit balances fell as consumers paid down credit card balances during the COVID-19 pandemic. But outstanding credit debt has reached pre-pandemic levels as Americans are becoming increasingly reliant on credit cards.
Keep reading to learn how to save money on credit card interest and fees, including low-interest credit cards and personal loans. You can compare interest rates on a variety of debt consolidation products on Credible for free without impacting your credit score.
How to reduce credit card interest and fees
Credit card interest can eat into your household budget and make it more difficult to pay other bills, like a housing payment and groceries. Per CFPB estimates, the average household pays more than $80 per month in credit card interest and fees, amounting to about $1,000 annually.
Thankfully, there are several ways to reduce the amount of credit card interest charges and annual fees you pay. Read more about each strategy in the sections below.
Pay off your credit card balance in full every month
Carrying a balance across multiple credit card billing cycles is a quick way to rack up interest. If you're making the minimum payment on your credit card, interest will accrue even faster. But it's possible to avoid paying interest entirely if you pay off your credit card statement in full by the payment due date.
Getting out of revolving credit card debt is easier said than done. However, there are a few strategies that can help you pay off credit card debt every month:
- Track your income and spending with a monthly budget. Then, only charge your credit card for the amount that you know you can repay in any given month.
- Put cash windfalls toward your credit card debt. If you get a bonus through work or even a hefty tax refund, be sure to put that money aside for debt repayment.
- Build an emergency fund. This can help you avoid taking out credit card debt to pay for unexpected expenses like car repairs or surprise medical bills.
You can begin building your emergency fund by setting up Direct Deposit from your paycheck directly into a high-yield savings account that grows over time with interest. Visit Credible to compare high-yield savings account rates across multiple banks at once.
Switch to a credit card with lower interest and no annual fee
The average credit card interest rate was 16.44% in Q4 2021, according to the Federal Reserve. Credit card interest rates are dependent on several factors, and they can vary from one credit card issuer to another. Some financial institutions offer low-interest credit cards that offer more competitive rates than certain types of rewards credit cards.
Besides interest charges, many credit card issuers charge a steep annual fee between $95 and $495. Some annual fees may be worthwhile for consumers who heavily utilize credit card rewards to redeem travel credits, but the savings don't always offset the annual fee.
However, there are plenty of credit cards that don't come with an annual fee. If you're paying a credit card annual fee for an account you don't utilize, consider switching to a card with no annual fee. You can browse all types of credit cards for free on Credible's online financial marketplace.
Consolidate credit card debt with a personal loan
Personal loans are lump-sum, fixed-rate loans that are commonly used to consolidate high-interest credit card debt. Debt consolidation loans offer lower interest rates than credit cards, and they're repaid in predictable monthly payments over a set period of time.
Paying off credit card debt with a personal loan may help you save hundreds or thousands of dollars over time. A recent Credible analysis found that borrowers with good credit can potentially save up to $2,400 in interest charges by paying off credit card debt with a personal loan.
Personal loan rates are currently at record lows, per Fed data, which means you may be able to save more money than ever while paying off your debt. Visit Credible to see personal loan rates tailored to you, and use a personal loan calculator to estimate your monthly payment and potential interest savings.
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