ROCHESTER, N.Y. — With inflation rising to 3.3% and Americans holding record household credit card debt, financial experts are warning about the risk of a debt disaster.
The average credit card interest rate is now 25.3%, according to Forbes. The Federal Reserve of New York indicates household credit card debt averages about $11,500.
“They give you a monthly minimum payment, you could owe $10,000 on that sucker and all of a sudden they say your minimum payment is $100. People think okay, I’m okay. But that’s not the case,” said Jarrett Felton, managing director of wealth management firm Invessent.
If you paid only the minimum on $11,500 in credit card debt, it would take about four and a half years to pay off plus almost $8,000 in interest.
Felton shared two methods for paying off debt.
Snowball method
The snowball method involves laying out all credit cards and targeting the smallest balance first.
You pay as much as possible on the card with the smallest balance and make minimum payments on the others. Once you’ve cleared the smallest debt, roll that payment over to the next credit card debt on your list. Repeat that process until all debts are cleared.
“You don’t always have to stay with the same method through all of your credit cards. Maybe we start with that and then we pivot to the next method,” Felton said.
Avalanche method
The avalanche method looks at the highest credit card interest rate first. Pay extra on your debt with the highest interest rate.
When you’ve paid that off, move to the card with the next highest interest rate, paying extra on that one while paying the minimum on everything else. Keep repeating this process until all credit card debt is paid.
Felton said your method matters less than your commitment to making a plan and sticking to it.
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