Do you need debt relief as inflation cools?

The economic landscape is experiencing a significant shift now that inflation is cooling and interest rates are dropping. But while the overall rate environment may be easing, many borrowers continue to grapple with the impact that the high-rate environment had on their finances over the last few years. That's especially true for those carrying credit card debt, as the Federal Reserve's recent decision to cut rates by 50 basis points has done little, so far, to drive down credit card rates. 

While the Federal Reserve's actions typically influence various forms of borrowing, such as mortgages and personal loans, credit card debt operates in a different realm. This leaves millions of Americans carrying an average of nearly $8,000 in credit card debt at a time when card rates are averaging about 23% – a record high. With retail card interest rates averaging over 30%, many cardholders are facing serious issues due to compounding interest. 

As a result, many cardholders are looking to debt relief to help ease the burden of their high-rate card debt. But does debt relief really make sense now that inflation is cooling?

Find out how to tackle your credit card debt now.

Do you need debt relief as inflation cools?

The answer to the question of whether or not you need debt relief is a personal one — and there are lots of factors that can play a role. That said, there's a good chance that if you're carrying around credit card debt you may still need debt relief, even in today's cooling inflationary environment. 

That's because, while the Federal Reserve's recent rate cut of 50 basis points was larger than expected, it's unlikely to translate into quick or substantial relief for credit card users, as credit card interest rates are not directly tied to the federal funds rate. Instead, they are linked to the prime rate, which is influenced by Fed decisions but allows credit card issuers considerable flexibility in setting their rates.

As a result, credit card companies are typically quick to raise rates when the Fed increases the federal funds rate but are often slower to pass on savings when rates are cut. This asymmetry means that even if the Fed rate cut results in some adjustment occurring at some point, it's likely to be minimal. 

For example, the Fed is widely expected to cut rates again in November or December by 25 basis points at each meeting. But even if card rates were to be reduced by that same amount, it would only lower a 23% interest rate to around 22.5% or 22% – a change that offers little meaningful relief to those struggling with thousands of dollars in credit card debt.

It's also important to note that credit card interest rates have been on an upward trajectory for several years, driven by factors like the rewards card market, regulatory changes and evolving risk assessments by issuers. So the Fed's recent rate cut is unlikely to reverse these broader trends in any significant way — and any future Fed rate cuts are also unlikely to have much of an impact.

Given these circumstances, many cardholders may find that they still need debt relief strategies, even as the broader economic and inflationary indicators show signs of improvement. 

Enroll in a debt relief program today.

What debt relief options are available?

If you've determined that you need help managing your debt, there are several relief options available, including:

• Debt consolidation: One debt relief option to consider is taking out a debt consolidation loan or enrolling in a debt consolidation program, which allows you to combine multiple high-interest debts into one loan with a lower, fixed interest rate. This simplifies your payments and can help you save money in the long run. For example, if you're paying 25% interest on your credit cards but can get a debt consolidation loan at 10%, you'll save significantly on interest. 
• Debt management: A debt management program might also be a choice worth considering. This type of program, which is typically offered through a credit counseling agency, involves negotiating lower interest rates or fees with your creditors. Once the terms are set, you'll make a single monthly payment to the agency, which will then distribute the funds to your creditors. This can provide some structure to your repayment plan, reduce interest rates and eliminate late fees.
• Debt forgiveness: For those who are overwhelmed by debt and can't manage to pay it off through traditional means, debt forgiveness may be an option. In this scenario, you (or a debt relief company acting on your behalf) negotiate with your creditors to settle your debt for less than the full amount owed. While this can provide relief, it can also damage your credit score and it has tax implications.

The bottom line

While inflation may be easing, high-interest debt, particularly on credit cards, remains a significant challenge for many people. Even with Federal Reserve rate cuts, the impact on credit card interest rates is likely to be minimal, so if you're struggling to keep up with your payments, it may be time to consider debt relief options. Whether you opt for debt consolidation, debt management or debt forgiveness, taking proactive steps now can help you avoid a worsening debt spiral.