Fed hike or no Fed hike, your credit card debt is expensive. Here's how to pay it off.

The cost of everything keeps creeping up. And if you happen to have credit card debt, that's about to get a bit more expensive too, thanks to a series of interest rate increases beginning this month.

With inflation at its highest rate since the early 1980s, the Federal Reserve is adjusting interest rates to hopefully restabilize the U.S. economy. In short, the Fed changes the federal funds rate, which alters the prime rate — that's the rate banks charge customers with high credit ratings. Credit card issuers add onto the prime rate to set their interest rates, so when the prime rate goes up, so does what you'll pay when you're in debt.

Got all that? Great. Now forget what you just read and pay attention to this part: If you have significant credit card debt, it doesn't really matter what the Fed is doing. Your credit card debt has always been, and will continue to be, expensive.

The true cost of credit card debt over time 

If you have a $5,000 balance remaining on your credit card from month to month, and your interest rate is 16%, you'll spend $800 in interest over the course of a year. If your interest rate increases to 16.25%, that translates to only an extra $13 in interest over a year.

Technically, that means it's not so much a rate hike as it is a gentle uphill slope. But $800 was already a lot, and that's without accounting for the fact that you'll still need to spend additional money you might not be able to pay back. The bills don't stop just because you're in debt.

This is why squeezing a stress ball while watching the news isn't helpful in this case. What is helpful is facing money issues head-on.

"The hardest part is ripping off the Band-Aid and really just adding up the numbers to see how much you owe," said Akeiva Ellis, a certified financial planner and founder of The Bemused, a financial literacy brand for young adults. "But if you're able to make it to that point, it's really all about making a plan. Don't let your debt overwhelm you. The sooner you can face the numbers and devise a plan to pay it down, the easier you'll breathe."

How you can pay less interest

• SHOP AROUND FOR BETTER DEALS: The average U.S. FICO score increased to 716 by August 2021, and that increase was more prevalent for those with lower credit scores. (FICO scores of 690 or higher are considered good credit.) "It may happen that when you applied for the account that you have, your credit score was lower," said Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling. He recommends checking your credit report and score to see whether you've moved into a higher score range. If that's the case, you may be able to negotiate a better interest rate on your credit card.
• CONSOLIDATE YOUR DEBTS: That higher credit score might also make you eligible for a balance transfer credit card with a no-interest promotional period, or a lower-interest personal loan. These can both give you a reprieve from high interest, but note that it depends on the terms you can qualify for. And in the case of balance transfer cards, the interest rate will go right back up once the 0% period ends.
• REVISIT YOUR BUDGET: The more money you can apply toward your monthly credit card payment, the sooner you can get out of debt. But that's easier said than done in a time of higher prices. "The interest rate hike doesn't live in a vacuum," McClary said. "Other things continue to happen that increase financial pressures on every American." If you don't know where to begin, McClary recommends getting budgeting help from a financial counselor or a nonprofit credit counseling agency. "Anything people can do to be proactive, they'll thank themselves for later."
• USE A DEBT REPAYMENT METHOD: This can help you stay organized and motivated, especially if you have multiple debts at the same time. Ellis suggests the debt avalanche repayment method, where you list your debts in order from highest to lowest interest rate, make minimum payments on all of them and apply any extra money in your budget to the highest-interest debt first. Once you pay that off, focus on the next debt on the list, and so on. "For most people, credit card debt is their most expensive debt," Ellis said. "So it is something that usually I'd encourage people to focus on first."

This article was provided to The Associated Press by the personal finance website NerdWallet. Sara Rathner is a writer at NerdWallet.