Consumer Borrowing is Up, But Now’s the Time to Pay Your Debt Down
Earlier this month the Federal Reserve revealed that consumer borrowing increased significantly in November 2017. In fact its rise was the largest monthly jump seen in the past 16 years according to MarketWatch. Additionally revolving credit (which includes credit cards) increased by $11.2 billion to reach $1.02 trillion. While these increasing figures signal consumer confidence in the economy, it could also mean bad news for borrowers in the coming months.
After an extending period of historically low-interest rates, The Fed has been slowing bumping rates over the past several months. Moreover they’re widely expected to continue that trend as the year rolls on. When that happens, credit card interest rates are likely to rise with them, meaning borrowers could be paying more on their debt. Speaking to USA Today, National Foundation for Credit Counseling spokesman Bruce McClary explained the issue saying, “Everyone has this sense that there is a storm brewing. All indications that we’ve seen are that people are carrying higher balances from month-to-month and more are behind on their monthly payments. That’s not a healthy mix.”
The good news is that there’s still time to turn things around and start paying down your debt before these potentially higher rates take effect. If you have multiple debts, there are several methods for attacking your balances and setting a plan to become debt-free. For example borrowers looking to save the most on interest should consider first tackling their debts carrying the highest interest rates. Meanwhile those who feel they need a “small win” before moving onto bigger challenges may choose to prioritize paying down cards with the smallest balances. Other plans include the “Snowball Method,” which you can download a spreadsheet for to help you decide what payments to make on what cards.
Another thing to keep in mind is that you may be able to reduce your interest rates using other options. In some cases you may be able to simply ask your card issuer to reduce your rate. If that doesn’t work it may be worth exploring balance transfer offers for new cards. However be aware that many balance transfers will cost you an extra fee and you’ll want to ensure you pay off the debt within the promotional period lest you end up right back where you started. Personal loans used to consolidate your debt are also an option but you’ll want to watch our for origination fees and compare interest rates.
On the one hand, rising consumer borrowing rates are a positive sign for our economy. That said ballooning balance and northbound interest rates could lead to a rude awakening for some borrowers. With that in mind, now is the time to start eliminating your revolving debt and save on interest by paying off your balances each month.