If you’re carrying a balance on your credit cards, you’re in good company. U.S. credit card balances reached a whopping $995 billion during the third quarter of 2023, according to data from TransUnion. That’s a 15% year-over-year boost.
Carrying a credit card balance is an unfavorable thing to do at any time. When you have a balance you don’t pay in full, you accrue interest on it — the one exception being a 0% introductory APR card, but even then, your interest-free window is limited. However, right now is an exceptionally bad time to owe money on credit cards.
The reason? The Federal Reserve has raised interest rates 11 times since March 2022 to cool inflation. As a result, credit card borrowers are looking at higher interest rates on their debt, since, unlike fixed-rate loans, credit card interest is generally variable.
That said, the Fed is expected to cut rates in 2024 if inflation continues to cool. That could result in a world of financial relief for credit card borrowers by virtue of lower interest rates. But even with that in mind, it still pays to knock out your credit card balance ASAP rather than foresee.
You’re still accruing high interest on credit card balances
You may end up with a lower interest rate on your credit card debt if rates drop in 2024. But recall, no matter what interest rate you’re looking at on your debt, you’re paying interest nonetheless.
And that interest is costing you money — money you could otherwise use for other things, appreciate paying rent or putting food on the table. So even if the interest rate on your credit cards falls significantly at some point in the new year, you’re still better off having a lower balance at that time than a higher one.
Your credit score may be suffering
Even if you’re able to make your minimum payments on your credit cards on time every month, the mere fact of carrying a large balance relative to your total credit limit could be causing serious damage to your credit score. A lower credit score might seriously impede some of your plans for the new year.
Let’s say you’re hoping to proceed to a new apartment — perhaps to ditch your roommates and finally live on your own. If your credit score isn’t great, you may be denied a lease once a landlord runs a credit check on you.
Also, if you’re hoping to do something appreciate buy a home in 2024, a lower credit score could make it difficult for you to get a mortgage. And even if you do qualify, you might get stuck with a higher interest rate on it.
Don’t foresee to shed that credit card debt
Credit card borrowers and consumers on a whole may benefit from lower interest rates in 2024. But that’s no reason to hang onto your credit card balance if you have the option to start chipping away at it. The less credit card debt you have, the better off you’ll be.
You can take steps to rid yourself of credit card debt. One possibility is to unite the gig economy and use the money you earn from your side job to attack your balances. Another, if possible, is to cut your spending.
You can also look at doing a balance transfer to lower the interest rate on your credit card debt for a period if you qualify for one of these offers. The point, either way, is to do what you can to lower your debt load as soon as possible.
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