Average credit card interest rates exceed 20%. This is how you can pay off your debts fast

By Carmen Reinicke —

Rising interest rates have pushed credit card annual rates to new highs.

The median annual rate on a new credit card is now over 20%, according to the LendingTree tracker.

It is the first time rates have exceeded 20% since the tracker began in 2018.

"When you consider that the cost of everything is rising seemingly daily, the last thing consumers need is for credit card rates to hit a new high, but that's where we are," said Matt Schulz, chief analyst. credit from LendingTree.

And rates are about to go even higher across the board.

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The Federal Reserve raised its benchmark interest rate by 0.75 percentage point in June, the biggest increase in 28 years, and said it will continue raising rates throughout the year to curb inflation.

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According to Schulz, the rates that consumers pay for their credit cards closely follow the actions of the Federal Reserve.

"Most likely, we are not near the peak of rates," he

warned.

That could spell trouble for Americans with outstanding bills.

Credit card balances reached $841 billion in the first three months of the year, according to a report from the Federal Reserve Bank of New York.

In the same time period, 229 million people opened new credit card accounts, an increase from the previous quarter.

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Look for lower rates to pay off debt

It's a great idea to try to deal with outstanding credit card debt, if you have any, to avoid paying more on that balance as interest rates rise.

"The biggest key to getting out of credit card debt is not paying a high interest rate on that debt

," says personal finance expert Suze Orman.

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One of the first steps Orman advises those who want to reduce credit card debt is to

This will help you pay off your debt faster and ensure that more of your money goes toward paying off what you owe, rather than accruing interest.

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There are a few ways to do this, such as a balance transfer to another credit card with a 0% interest rate for a set period, taking out a personal loan with a lower interest rate to pay off your credit balance, or working with a credit counselor to consolidate your debt at a lower rate.

These options will depend on your personal situation and credit score, Orman said.

For those with lower scores, he recommends going to the National Foundation for Credit Counseling for help lowering your interest rate and getting you on a payment plan.

Choose a refund method

If you're going to pay off your debt while keeping your cards open, there are generally two methods people use to pay off a balance, according to John Scherer, a certified financial planner and founder of Trinity Financial Planning in Madison, Wisconsin.

One of them is to round up all outstanding debts by balance and start by paying the smallest.

The second model, which Scherer personally recommends to his clients, is to

Over time, this means you'll pay less money to pay off your debt because you're addressing the higher interest rates right away.

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Orman also recommends this approach.

It says to round up your credit card debt and add up all the minimum payments due each month.

From there, add 20% or more to the total payment and apply it to the debt with the highest interest rate.

Once you've paid it off, transfer that extra payment to the next card, and then the next, until you've cleared it all.  

Boost savings

In addition to paying off your debt, make sure you're setting aside some money to build emergency reserves, Scherer said.

This is to keep you from racking up more debt while you work to pay off your current balance.

“If the balance is paid off, the transmission goes down or the fridge goes down, and it goes back to the credit card for another thousand dollars,” he said.

If you want to keep your credit cards open so you don't mess up your credit score but don't use them as much, Orman suggests hiding them from yourself.

"What you could do is take all your credit cards, put them in a plastic bag and put them in the freezer," he said.

"Don't tempt yourself."

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