Why you should pay down your credit card debt right now
If you carry a credit card balance from month to month, you're going to pay more each time the Fed hikes interest rates.
The cost of everything keeps creeping up. And if you happen to have credit card debt, that's about to get a bit more expensive too.
Rising interest rates mean your monthly credit card payments may rise sharply this year as annual percentage rates go up, increasing the amount of time it takes to pay off balances.
According to the Federal Reserve, 84% of Americans have at least one credit card, and half of them carry a balance from month to month.
MORE: Federal Reserve attacks inflation with its largest rate hike since 1994
ABC News Chief Business Correspondent Rebecca Jarvis breaks down what consumers need to know.
Editor's note: Jarvis' responses were edited for clarity.
As the Fed raises interest rates in its attempt to control inflation, how is credit card debt affected?
Jarvis: It impacts everyone. If you carry a credit card balance from month to month, it means that you're going to pay more each time the Fed hikes interest rates. With each rate increase, credit card APRs (annual percentage rates) are going up, so you could even see the latest rate hike show up in your current billing cycle.
Give us an example. How much is this going to cost people?
Jarvis: It has a significant impact. Let's say you carry the average credit card balance of $5,525 and you're paying 20% APR. If you're only making minimum payments, at about 2% of the balance, it will take you more than 58 years to pay off your credit card. That will cost you almost $24,750 in interest.
If the APR jumps to 21%, it will take 76 years to pay off that same balance, costing you more than $34,400 in interest.
How can cardholders prevent that scenario from becoming a reality?
Jarvis: Because we know that rates are rising, this is only going to get more expensive.
The first thing you can do: Stop taking on new credit card debt. Put together a budget and apply any disposable income to paying down your debt.
Focus on making larger monthly payments. The difference between $50 in interest toward your monthly bills and $100 toward your monthly bills can be years and thousands of dollars in interest.
What about transferring your balance to a zero-percent APR card?
Jarvis: It can work, but there can be a lot of caveats. First, you have to qualify. Then you have to make sure the benefits outweigh the costs. Many cards charge a balance transfer fee of about 3%.
Finally, and most importantly, this cannot be an incentive to take on more debt. Zero-interest APR lasts for a set amount of time, usually a year or two maximum, so cardholders need to continue making payments on time.
