Credit card interest rates are soaring. Here's what it could cost you to carry a balance
BOSTON - Credit cards are as important to the holiday shopping season as Christmas trees and wrapping paper.
If you're among the half of Americans who pay their credit card balance in full every month, you're ahead of the game. But, if you're in the other half who carry a balance, beware - interest rates have gone up and you'll be paying a lot more for those gifts.
"There's an industry saying that credit cards are like power tools, as in really useful or dangerous. It's all about how you use them," Ted Rossman, a senior industry analyst at Bankrate, told WBZ-TV's I-Team. "The point is that holiday debt hangover can be a nasty one and there's a lot of everyday pressure to spend. It's grocery bills. It's medical bills. It's gas. It's all these things that have already inflated credit balances. I would try not to make it worse around the holidays."
Credit card balance math
Here's the math on carrying a credit card balance:
If you owe $6,400, using the average credit card interest rate of about 20 percent and making just minimum payments, it will take 18 years and more than $9,000 in interest to pay it off.
Interest rates on store credit cards are at an all-time high. The I-Team has learned that many big retailers, like Macy's, have been jacking up their interest rates to nearly 35-percent.
Paying down credit card debt
Companies like Affirm, Afterpay or Klarna can help a bit. They allow you to buy certain items and make payments over time.
"In many respects, they paint themselves as kind of the kinder, gentler alternative to a credit card," Rossman said. "The key there is look at the total cost of ownership. Don't check yourself with the installments, think about what are you really paying and what are the terms? Sometimes it's interest-free over 6 weeks. Sometimes it's 20-percent interest over two years. That starts to feel more credit card like."
So what can you do if you end up in holiday debt?
Experts say try to transfer your high interest rate balance to a no interest or zero percent card. If that's not possible, try to negotiate a lower interest rate from your credit card company. If that fails, look to get nonprofit credit counseling.
"We've actually found that about three-quarters of the time when people ask for a lower interest rate, they get it." Rossman said.
Macy's did not respond to our request for comment. Consumer advocates also caution consumers about retailers offering discounts on purchases to customers who sign up for their store cards. Before agreeing, be sure you understand the terms. While there are no federal caps on interest rates, companies are required to disclose the card's interest rate, late fees and penalties.