Michelle Fox -
CNBC + Acorns
Many Americans are unaware of an important aspect of their credit cards.
Of those who have a balance, 40% do not know the interest rate that is applied to their main card, according to a new Bankrate survey.
That could end up costing them a lot of money.
"As much as we've heard of minimum interest rates on other products, credit card rates are already high and are likely to rise," says Ted Rossman, principal industry analyst at Bankrate and CreditCards.com.
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The average rate for credit cards is 16.3%, according to Bankrate.
With the Federal Reserve planning to raise interest rates this year, credit card rates will be more like 17% on average by the end of the year, Rossman predicts.
A person makes purchases with his computer using his credit card.Jesús Hellin / Europa Press via Getty Images
However, those with balances tend to have even higher rates, perhaps due to lower credit scores.
Interest-bearing accounts had an average interest rate of 17.13% in the third quarter of 2021, according to the Federal Reserve. New tax rules will affect merchants using electronic applications for payments
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At the higher rate, if you made the minimum payments on your average credit card balance - which is $ 5,525 according to Experian - it would take you 16 years to pay off the debt.
You would owe more than $ 6,500 in interest, according to Bankrate calculations.
To do
To pay off your debt as soon as possible, you have several options.
The best route is to transfer it to a zero-interest credit card, which can defer interest for up to 21 months, Rossman suggests.
"They were very hard to come by in 2020, as lenders were very concerned about risk," Rossman recalled.
“Now there is a lot of competition again.
So you can use that to your advantage, ”he added.
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Also consider increasing your income to pay off debt, such as taking a side job or trying to negotiate a raise at work.
If you can't get a zero-interest card, consider a personal loan as a form of debt consolidation, Rossman suggests.
Although it will not have a zero interest rate, if you have good credit it can be 5% to 7%.
The term can be up to five years.
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For those who need help, consider a nonprofit credit counseling, which can help with debt management plans.
You don't have to have good credit to qualify, according to Rossman.
One thing you shouldn't do is focus on credit cards that offer rewards.
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While they're great if the bill is paid in full every month, paying off the debt should be your priority, according to Rossman.
“Do not pursue the return of money if you are paying between 15% and 20% interest.
Save the reward chase until you are debt free, ”he suggested.
This article is part of the
Invest in You Ready series.
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(Invest in you: Ready. Done. Grow), an initiative of CNBC and Acorns, the microinvestment app.
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