It's getting more expensive to pay down credit card debt.
The average interest rate on new credit card offers is now nearly 23%, according to LendingTree's latest analysis. That's up from about 22.4% in November.
"Credit card interest rates are as high as they've ever been," Matt Schulz, chief credit analyst at LendingTree, tells CNBC Make It. "Unfortunately, 2023 isn't likely to be much better."
The Federal Reserve raised interest rates for the seventh time this year in an effort to combat inflation and is expected to continue increasing rates next year. Since most credit cards have a variable interest rate, there's direct connection between the Fed's rate hikes and the interest rate you're charged on your credit card.
A higher interest rate also means that your credit card debt will cost more to pay off, Schulz says.
Say you have a $5,000 balance on a card with a 19% annual percentage rate (APR). If you pay $200 a month, for example, you'd fork over about $1,415 in interest, in addition to the principal balance of $5,000, according to LendingTree's calculations.
Now say you have that same credit card balance of $5,000 but with a 22% APR. It would cost you about $1,750 in interest, according to LendingTree's calculations. That 3% difference would come to an additional $335 in interest charges.
Although you can avoid interest charges altogether by paying your statement balance in full every month, that's typically easier said than done. If you're feeling discouraged by credit card debt, here are three steps you can take now.
1. Create or update your budget
"You can't have a meaningful plan to tackle credit card debt if you don't know how much money is coming in and going out of your household each month," Schulz says.
Once you know how much money you're making and how much you're spending, you can figure out how much to allocate toward paying off credit card debt and meeting other financial goals. If you already have a budget, be sure to continually update it to reflect rising costs driven by inflation.
"Chances are that all the assumptions you made three to six months ago about what things would cost have all been blown out of the water by inflation," Schulz says.
2. Consider a balance transfer card
Balance transfer cards offer an introductory 0% APR period that can last up to 21 months. By transferring a high balance to one of these types of cards, you're able to pay down your debt without incurring costly interest charges for a period of time.
"Balance transfer credit cards are absolutely one of the best weapons against credit card debt." Schulz says.
However, you typically need a credit score of 670 or greater to qualify for a balance transfer card. Although having a good or excellent credit score doesn't guarantee that you'll qualify, the likelihood that you'll be approved generally decreases if your credit score is below 670.
It's also important to note that card issuers typically limit the amount of debt you can transfer to a new card. That means you may only be approved to transfer part of your debt.
If you do get one, be sure to review the balance transfer fee, which can range from 3% to 5% of the amount you've transferred. Also, watch out for payment deadlines to avoid late charges.
3. Call your credit card issuer and ask for a lower rate
One of the biggest misconceptions about credit card interest rates is that you have no control over it, but you actually have more power than you think. About 70% of people who asked for a lower interest rate on their credit card in the past got one, according to a 2022 LendingTree survey.
With such a high success rate, you probably don't need a perfect credit score or a long track record with the bank to lower your credit card interest rate, Schulz says.
"There are no guarantees, of course, but as the old saying goes, if you never ask, the answer is always no," he says.
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