How to Manage Your Credit Cards Responsibly with Rising Interest Rates

With interest rates steadily rising, experts say you’ll soon feel the effects on your credit card balance. The Federal Open Market Committee in the month of July increased its target federal funds rate range from 1.5%-1.75% to 2.25% – 2.5% which is the fourth increase since March and more increases are expected to come this year.  What does this mean for credit cardholders? How can you better manage your credit cards? 

This increase will mean higher APRs and longer debt payoff periods for credit cardholders. And that’s amid already-growing credit card debt between the third and fourth quarters of 2021, credit card balances increased by $52 billion nationwide. 

So what should you do right now? Here are ten steps to manage your credit cards responsibility amid rising interest rates.  

1. Know Your Terms

When you open a new credit card account, be sure to carefully read the credit card customer agreement and the account opening disclosures. This way, you’ll know what to expect when it comes to due dates, fees, interest rates, and other information.

2. Make Payments on Time

Make sure to make your payments on time, every time. That’s because your payment history is an important factor when it comes to your credit scores. And missed or late credit card payments can not only affect your credit, but they can also lead to late fees and interest rate increases, too.

Set up automatic payments or electronic reminders to help you make sure you pay on time.

RELATED: Common Credit Card Mistakes and How to Avoid Them

3. Pay More Than the Minimum

Making your credit card minimum payments on time every billing cycle helps you avoid penalties and fees. But if you only pay the minimum, you’ll be carrying a balance. And you’ll be charged interest on that balance. 

Those interest charges can make it harder to pay off your credit card debt. So take it from the CFPB: “If possible, pay off your credit card bill in full each month.”

4. Stay Below Your Credit Limit

Only use the credit you really need. Why is this important? Your credit scores could be affected by your credit utilization ratio, that is, how much of your available credit you use. The lower your credit utilization ratio, the better your credit score might be. In fact, the CFPB recommends using no more than 30% of your credit limit.

RELATED: 5 Key Ways to Fix Bad Credit

5. Check Your Monthly Statements Carefully for Accuracy

Monitoring your statement helps you check for fraud, stay on a budget and maintain a low balance. Regularly checking your credit card statements either online or when they arrive in the mail can be a great way to keep your spending top of mind. It can help you spot suspicious transactions.. And that could help protect you from fraud.

6. Monitor Your Credit

It’s always a good idea to keep a close eye on your credit. Monitoring your credit can help you keep track of where you stand.  And it’s another way to help you spot errors and potential fraud attempts that could be hurting your credit.

RELATED: 5 Steps to Take After Paying Off Your Credit Cards

7. Consider a Balance Transfer Credit Card

Carrying a lot of debt? You may be able to insulate yourself from rate hikes for a limited time with a balance transfer card. If you have good credit, you may qualify for an offer that allows you to transfer your balances to a card with a zero percent interest rate for a limited time. Some introductory credit card rates last as long as 21 months. Since you won’t pay any interest charges during this promotional period, you can accelerate your debt reduction efforts without interest charges holding you back.

Bare in mind, that you may have to pay a balance transfer fee, which is typically 3% or 5% of the amount you transfer.

8.  Negotiate a Lower Interest Rate

Another important step you can take is to contact your card issuer and negotiate a lower APR. There’s no guarantee your request will be granted, but your credit card company may agree to a lower rate if you have a good credit score and a consistent record of making payments on time.

10. Stop using your credit card and switch to cash or a debit card

Credit cards are a great financial tool to improve your credit, earn points or cash back for trips or dream buys, or even give you access to generous travel benefits, like airport lounges or priority security access. But they can also cause you to overspend and to incur debt very quickly if you don’t manage them responsibly.

If you find yourself spending more when using a credit card, maybe it’s time to give your credit card a break.

Bottom Line

With interest rates rising, exercising responsible credit card use makes even more sense. What have you done to help manage your credit cards? So doing things like making on-time payments, paying more than the minimum, only using the credit you need, and monitoring your credit can help ensure that your credit card use is helping not hurting your credit.

Do you have plans in place to manage your credit cards?