In early August 2023, the Federal Reserve Bank of New York revealed that US consumer credit card debt surged to its highest level – topping $1 trillion.¹ This upswing in credit card spending comes as individuals nationwide grapple with managing their finances amidst escalating prices.

While rising credit card balances are worrisome, it’s the potential long-term consequences of higher interest rates that are cause for alarm. In this article, we’ll reveal tactics you can implement to reclaim your budget and reduce your dependency on credit cards. But first, it’s essential to understand the cause of these record-setting balances.

 

The Foundation of Higher Credit Card Usage

During the COVID-19 pandemic, stimulus payments and decreased spending caused consumer savings to jump drastically. As businesses began to reopen, consumer spending resumed as people sought to return to normalcy. However, no one was prepared for the record-setting inflation that would soon follow.

Skyrocketing prices, slower wage growth, and declining savings levels created the perfect storm that would lead many to become reliant on credit cards to make ends meet. As the Federal Reserve implements monetary policies to curb inflation, consumers are left stuck in the middle.

 

Strategies to Reduce Credit Card Dependency

It’s easy to blame the economy and remind yourself that millions of people are in the same financial predicament. However, if left unchecked, excessive credit card spending can wreak havoc on your finances for years to come.

While reducing debt or changing spending habits is never easy, small adjustments can lay the groundwork for drastic improvements. Fortunately, many of these moves are simple and can provide instant financial relief. 

 

#1: Rework Your Budget

Budgeting is the key to successfully managing your finances. It’s important to remind yourself that your budget doesn’t have to be perfect. It rarely will be. Instead, your goal is progress. Create a budget that is flexible and can adapt to the changing economy.

As prices continue to rise, it’s crucial to reevaluate your spending habits. Your financial position has likely changed over the past couple of years, and the best way to make ends meet without relying on credit cards is to reduce expenses. Even temporary cuts can free up valuable funds.

When creating a budget, keep the following tips in mind:

• Most people overestimate their incomes and underestimate expenses. Review several months of financial account and credit card statements to obtain accurate figures.

 

• Don’t wait until the end of the month to use leftover funds to pay down debt. Instead, treat money for savings or credit card payments like any normal monthly bill and add it directly into your budget.

 

• Group your expenses into categories to make them easier to track and evaluate. Examples include housing, transportation, groceries, entertainment, savings, and debt payments.

 

• Track your expenses regularly and set a time monthly to balance your budget. Remember, don’t become frustrated if you get off track. Instead, learn from any mistakes and keep going.

 

#2: Consolidate High-Interest Debt

Credit cards tend to have the highest interest rates among loans today. Anytime you can reduce the interest you pay on credit card debt, the better. One of the easiest ways to reclaim control over credit card balances is through debt consolidation.

Debt consolidation is the process of taking several high-interest credit card balances (or personal loans) and switching them to a single, lower-rate credit card or loan. For example, imagine you have three credit cards with the following balances and interest rates:

Credit Card	Outstanding Balance	Interest Rate (APR)
Card #1	$2,500	16.99%
Card #2	$3,000	23.99%
Card #3	$1,000	19.99%

 

Your total outstanding credit card balance is $6,500, and your interest rates range from 16.99% to 23.99% APR. Through debt consolidation, you can move all these balances to a new credit card with a lower rate, like 12% APR. Instantly, you’ll reduce the amount of interest you pay monthly – freeing up money for your budget or extra credit card payments.

There are two common types of debt consolidation:

• Credit Card Balance Transfer

 

With a credit card balance transfer, your outstanding balances are moved to a new, lower-rate credit card (as in the example above). This process is simple, and you can often take advantage of promotional offers with lower introductory rates. Just make sure you review and understand any fine print pertaining to special rates or offers.

 

• Debt Consolidation Loan

 

A debt consolidation loan functions in the same manner, except the outstanding credit card balances are transferred to a lower-rate personal loan. This tactic often helps people reduce their debt quicker since you have set monthly payments (versus minimum monthly payments on credit cards). Plus, the interest rates on personal loans are usually much lower than traditional credit cards.

 

#3: Combat Temptation

While the economy plays a tremendous role in surging credit card debt, it’s not the only factor. Other measures, including advertising, social pressures, and mental health, influence people’s spending habits. 

When creating your budget, review your credit card statements. Identify frivolous expenses and determine what caused you to make those purchases. For example, many people shop when stressed, bored, or upset. Others feel pressure to keep up with the Joneses thanks to social media.

Understanding your spending habits and identifying what triggers you to spend is crucial. You might consider unsubscribing or unfollowing certain companies online or removing shopping apps from your devices. Anything to help reduce the urge to spend frivolously will boost your bottom line.

 

#4: Rebuild Your Emergency Fund

Once you regain control over credit card debt, focus on rebuilding your emergency fund. If the world taught us anything over the last few years, it’s that the unexpected should always be expected. Whether it’s record inflation or an unplanned medical expense, being prepared is vital.

Try to set aside three to six months of living expenses in an emergency fund. That is a lofty goal, but you don’t have to do it all at once. Set up payroll deductions or automatic transfers into your savings account, and let the balance grow steadily over time.

An emergency fund not only provides money to cover unexpected expenses, but it also shields you from relying on high-interest credit cards.

 

We’re Here to Help!

Overcoming credit card debt can often feel impossible, especially when factors out of your control, like the economy, are at play. However, with some help and the proper guidance, it’s much easier than you might think.

If you’re interested in learning how debt consolidation can instantly save you money, we’re ready to help. Give us a call or go online to learn more about our Personal Loan options or our 0% APR¹ Balance Transfer offer for 15 months.²

 

(1) APR is Annual Percentage Rate. Rate quoted is for balance transfers from non-AgFed accounts only. Balance transfer rate applicable for 15 months from the first qualifying transaction. APR will revert to your approved VISA® credit card rate based on card type after 15 months. APR is based on the Prime Rate published in the Wall Street Journal plus or minus a margin and based on evaluation of credit.

(2) A balance transfer transaction fee of 3% of the dollar amount of balances transferred will apply per balance transfer, or $10, whichever is greater and will be reflected as a finance charge. This is a limited time offer. AgFed reserves the right to withdraw this offer at any time without notice. Certain conditions and restrictions may apply.