Ted Rossman, senior industry analyst at Creditcard.com, joined Cheddar News to give tips on personal finance amid rising debt. “Credit cards are like power tools. They could be really useful or they could be dangerous.”

Ted Rossman, senior industry analyst at Creditcard.com, joined Cheddar News to give tips on personal finance amid rising debt. “Credit cards are like power tools. They could be really useful or they could be dangerous.<b>”</b>

Navigating Credit Cards and Personal Debt

well as the Federal reserve continues to raise interest rates. Credit card annual percentage rates or a prs are climbing too and they've soared to over 20% in recent months while retail credit cards which tend to charge the most are coming in with an Ap are close to 30%. So bad news for about half of americans that carry credit card debt just to get by joining me Now is Ted Rossman, senior industry analyst at Bankrate dot com. Ted it's so good to see you. Um so it is a really rough time in fact to carry credit card debt. Um but amid rising inflation, right? Some families simply have no choice and add covid health care costs to that to write it. It really kind of all adds up here. And so what are the dues and don's when it comes to managing credit card debt. My top tip if you have credit card debt is to forget about rewards and prioritize your interest rate. The best way to do that is to get a 0% balance transfer card examples include the Wells Fargo reflect the bankamericard and the city diamond preferred. All of these offer no interest for up to 21 months when you move your existing credit card debt over to one of these. Something like that is probably your best bet. You might also consider a low rate personal loan if you can qualify or nonprofit credit counseling, but I would start with the balance transfer if you can. Okay, so a balance transfer is good to know if you have found yourself in credit card debt. Ted what are the next steps? I mean you might be getting that call from a credit agency. Right. How do you manage that process? It's definitely important to come up with a plan and be organized so know how much you owe and to whom you owe it and what's the interest rate. Some people advocate for the snowball approach where you start with the smallest amounts and then you gain momentum like that snowball rolling downhill and then you tackle the bigger ones. There's another snow metaphor, the avalanche where you start with the highest rate and then you move on down the list that will save you the most money. Mathematically if all of this sounds super confusing and you need extra help. There are some really helpful nonprofit credit counseling agencies like Money management International and Green Path. They can really provide you with helpful advice, negotiate better terms with your creditors. Maybe you get something like a 6% rate over four or five years if you're not comfortable with the do it yourself route. I think these agencies can be extremely helpful. Okay that's really good advice. What about consolidating debt? I think we kind of talked about this. You mentioned you might have several credit cards. Right. Um so if you do want to consolidate that debt, what is the best way to go about that? There are a few different ways to do it. The least expensive is one of those 0% balance transfer cards. If you can qualify, you generally need a credit score in the upper 600 or above. So most people should be able to qualify, although you may not get a credit limit high enough, especially if you owe more than $5000. This might not be the best option for you, but if you can, I consolidating your high cost debt onto one card with the 0% rate is best personal loans would be another example if you have good credit rates go as low as about 6% over 56 or seven years. And then another example would be that nonprofit credit counseling one where their debt management plans could also be a form of debt consolidation. Probably Best suited for people who owe more than $5,000 or have a low credit score or are just not comfortable managing it on their own. So sometimes obviously you mentioned there are a lot of options when it comes to credit cards for a card with an annual fee. Is that something people should maybe be a bit wary of? I'm sure that probably does come with some extra perks and rewards. Like you mentioned earlier that annual fee mostly comes into play on rewards cards. And the big fork in the road here is whether or not you carry a balance and it's roughly half and half the american bankers association says 54% of active credit card accounts are carrying debt from month to month. So if you have debt, I think you need to forget about rewards and put the interest rate first. That's a big mistake. I see a lot of people chase one or two or 5% cash back Or airline miles. It's not worth it if you're paying 20% so that's an important consideration there. But if you can painful then annual fees are worth considering just because the perks are often more premium. So if you're going to use the airport lounge or if you're going to benefit from those enhanced rewards categories or first class upgrades, you need to know yourself. It's why people say credit cards are like power tools. They could be really useful or they could be dangerous. I haven't heard that comparison before. Ted but I like it. It's a good one. Um So look the reality is that black friday is around the corner. The holiday shopping season is upon us and continuing for the next, I don't know, I would say 6 to 8 weeks or so. But oftentimes you can save more money if if you open a credit account or a rewards card, if you will a credit card with some of these retailers, any big retailer out there, What do consumers need to know thinking that that might save them money but are there risks involved. Door cards have especially high interest rates. We recently did a study and we found more than 30 that we're charging 29.99% or higher. So if you ever carry a balance this is a very risky option. Even if you can pay in full though it May not be your best choice. At least paying in full avoids interest. But then I would ask do you shop at this store enough for it to be worthwhile? Sometimes it is Amazon best buy target Walmart. They all have credit cards that give 5% cash back when you shop there but you have to pay in full, you have to be loyal for it to be worthwhile. And then the other thing is that initial discount, they may say 10% off today's purchase. Yeah, that's a big purchase that you can pay in full. Maybe that is worth it. Otherwise though even if you pay in full and avoid interest, you might be better suited for something else, like a travel card or a cash back card that's more broadly applicable. Alright, ted rossman, great advice. Ted thank you. Senior industry analyst at Bankrate dot com