The cost of borrowing money is going up, so it's time to get serious about paying down those unpaid credit card balances.
The average household with credit card debt has a combined balance totaling $16,748, according to the 2016 American Household Credit Card Debt Study by NerdWallet, up nearly a thousand dollars from 2015.
Last week's decision by the Federal Reserve's to boost short-term interest rates will be passed along to variable rate accounts — and that's most credit cards — within the next one or two billing cycles. And if the Fed boosts rates two more times before the end of the year, as is expected, carrying a balance will cost even more.
"Now is the time for cardholders to put debt repayment into high gear, finding extra room in their budgets to pay off those balances as quickly as possible," said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. "If you carry a balance from month to month, you're going to pay more and more for what you purchased and that really adds up over time. And if you're only making the minimum payments, you're just spinning your wheels and it could take years, sometimes a decade or more, to pay off a large balance this way."
For most American households, credit card debt is their highest-interest debt. The average credit card interest rate is currently 16 percent, according to Bankrate.com.
"If you want to go from being hurt by rising interest rates to benefiting from them, pay off this debt."
"That means that by paying off those credit card balances, the average cardholder is making a risk-free return of 16 percent," said Greg McBride, chief financial analyst at Bankrate. "If you want to go from somebody who's being hurt by rising interest rates to somebody who can benefit from them, pay off this debt and then funnel that money into savings instead of pouring it into interest payments each month."