43% of seniors struggle with higher debt payments if the Fed hikes interest rates, the survey finds
In March, the Federal Reserve implemented the first of several rate hikes planned for 2022 to offset rising consumer prices. But at a time when inflation is rising at its fastest pace in 40 years, the Fed’s economic policies could push up the cost of borrowing for seniors – many of whom depend on a steady income from Social Security.
About two in five seniors (43%) have revolving credit card debt, according to a new survey by advocacy group The Senior Citizens League (TSCL). Also, about half (49%) of respondents have used up their savings or have no emergency fund at all.
“Credit card debt in retirement can get out of hand quickly, and this is especially true during a time of rising interest rates,” said Mary Johnson, an analyst at TSCL.
Read on to learn how the Fed’s rate hikes are affecting the cost of living for America’s seniors and how you can reduce your credit card balances. One strategy is to consolidate high-interest credit card debt into a fixed-rate personal loan. You can visit Credible to compare credit card consolidation loan rates for free without hurting your credit score.
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TSCL: Social Security payments are not keeping pace with inflation
A recent TSCL report found that the 5.9% Social Security Cost-of-Living Adjustment (COLA) for 2022 is not enough to keep up with rising prices, especially when it comes to higher healthcare costs. As inflation continues to “erode the purchasing power of Social Security,” many seniors use credit card spending to cover their expenses.
Federal Reserve Chair Jerome Powell said the central bank plans several rate hikes this year to combat inflation, which rose 7.9% annually in February — well above the Fed’s 2% target. However, this move may increase debt payments for seniors who have a steady income from Social Security.
“We are in a period of high inflation where rising interest rates will mean many consumers will need to reduce the debt they carry on credit cards month after month to keep those costs manageable,” Johnson said.
When the Fed raises its benchmark interest rate, it can cause interest rates on a range of adjustable-rate lending products, such as credit cards, to rise. This can drive up monthly minimum payments, making it difficult for many consumers to afford their credit card bills.
It may be possible for borrowers to reduce their monthly payments and save money on interest through credit card consolidation. This is when you take out a fixed-rate personal loan to pay off credit card balances in predictable monthly payments over a set repayment period. You can learn more about debt consolidation loans by connecting with a knowledgeable loan expert at Credible.
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3 ways to pay off credit card debt
Getting out of debt is difficult enough in normal economic conditions, but it can be even more difficult in times of inflation, when the prices of a range of necessary expenses are rising. However, with credit card fees set to rise, finding ways to avoid running up large credit card balances is more important than ever.
“As a result of inflation, many older households are struggling to stay afloat,” says Johnson. “As difficult as these times may seem right now, it’s important to have a debt reduction plan in place — and that would mean using less credit cards and paying more of the balance,” Johnson says.
You can read more about getting rid of credit card debt in the following sections.
1. Nonprofit Credit Advisory Services
Credit counseling agencies provide free or low-cost services to consumers who are struggling to manage their debt. A credit counselor can enroll you in a debt management plan (DMP) to repay your creditors in monthly payments. You may also be able to negotiate with your creditors to reduce the amount you owe, waive late fees, and lower your interest rate.
A list of accredited non-profit credit agencies can be found on the Department of Justice website.
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2. Fund Transfer Credit Cards
It may be possible to transfer the balance of one or more credit cards to a new account with more favorable conditions. This can make it easier to pay off credit card debt in a single monthly payment at a lower interest rate.
Well-qualified applicants may also qualify for a balance transfer card with an introductory offer of 0% APR, essentially giving them up to 21 months to pay off credit card debt without interest. These offers are typically reserved for individuals with very good or excellent credit, defined by the FICO model as a credit score of 740 or greater.
It is important to note that you may be charged a transfer fee of 3-5% of the total amount to be transferred. You can visit Credible to compare fund transfer offers from multiple credit card companies at once.
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3. Credit Card Consolidation Loan
Debt consolidation is when you take out an unsecured personal loan to pay off multiple types of debt at a lower interest rate. Personal loans offer fixed interest rates, which means your monthly payment and repayment terms remain the same throughout the loan term.
Personal loan lenders determine eligibility and interest rates based on a borrower’s creditworthiness. Applicants with good credit and a low debt-to-income (DTI) ratio will see the best possible deals, while those with fair or bad credit may struggle to get a personal loan on good terms.
Luckily, there’s good news for consumers considering this debt-payment strategy: Personal loan rates hit record lows in March, according to data from Credible. This means borrowers could potentially save more money than ever before by paying off credit card debt with a fixed-rate loan.
You can browse the current personal loan rates in the table below and visit Credible to see free offers tailored for you without hurting your credit score. This way, you can decide if credit card consolidation is the right debt settlement method for your financial situation.
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