In early August 2023, the Federal Reserve Bank of New York revealed that US consumer credit card debt surged to its highest level – topping $1 trillion.¹ This upswing in credit card spending comes as individuals nationwide grapple with managing their finances amidst escalating prices.

While rising credit card balances are worrisome, it’s the potential long-term consequences of higher interest rates that are cause for alarm. In this article, we’ll reveal tactics you can implement to reclaim your budget and reduce your dependency on credit cards. But first, it’s essential to understand the cause of these record-setting balances.

Why Credit Card Usage is Soaring

During the COVID-19 pandemic, stimulus payments and decreased spending caused consumer savings to jump drastically. As businesses began to reopen, consumer spending resumed as people sought to return to normalcy. However, no one was prepared for the record-setting inflation that would soon follow.

Skyrocketing prices, slower wage growth, and declining savings levels created the perfect storm. Many people began to rely on credit cards just to get by. As the Federal Reserve struggles to implement monetary policies to curb inflation, consumers are left stuck in the middle.

Strategies to Reduce Credit Card Debt Dependency

It’s easy to blame the economy and remind yourself that millions of people are in the same financial predicament. However, if left unchecked, excessive credit card spending can wreak havoc on your finances for years to come.

While reducing debt or changing spending habits is never easy, small adjustments can lay the groundwork for drastic improvements. Fortunately, many of these moves are simple and can provide instant financial relief.

#1: Rework Your Budget

Budgeting is the key to successfully managing your finances. It’s important to remind yourself that your budget doesn’t have to be perfect. It rarely is. Instead, your goal is progress. Create a budget that is flexible and can adapt to the changing economy.

As prices continue to rise, it’s crucial to reevaluate your spending habits. Your financial position has likely changed over the past couple of years, and the best way to make ends meet without relying on credit cards is to reduce expenses. Even temporary cuts can free up valuable funds.

When creating a budget, keep the following tips in mind:

• Most people overestimate their incomes and underestimate expenses. Review several months of bank and credit card statements to get accurate figures.
• Don’t wait until the end of the month to use leftover funds to pay down debt. Instead, treat money for savings or credit card payments like any normal monthly bill and add it directly into your budget.
• Group your expenses into categories to make them easier to track and evaluate. Examples include housing, transportation, groceries, entertainment, savings, and loan or credit card payments.
• Track your expenses regularly and set a time monthly to balance your budget. Remember, don’t become frustrated if you get off track. Instead, learn from any mistakes and keep going.

With prices changing constantly, it’s best to review your budget every few months.

#2: Consolidate High-Interest Debt

Credit cards tend to have the highest interest rates among loans today. The average credit card rate is 24.74% as of September 2024 according to investopedia.com.  Anytime you can reduce the interest you pay on credit card debt, the better. One of the easiest ways to reclaim control over credit card balances is through debt consolidation.

Debt consolidation is the process of taking several high-interest credit card balances (or personal loans) and switching them to a single, lower-rate credit card or loan. For example, imagine you have three credit cards with the following balances and interest rates:

Credit Card	Outstanding Balance	Interest Rate (APR)
Card #1	$2,500	16.99%
Card #2	$3,000	23.99%
Card #3	$1,000	19.99%

Your total outstanding credit card balance is $6,500, and your interest rates range from 16.99% to 23.99% APR. Through debt consolidation, you can move all these balances to a new credit card with a lower rate, like 12% APR. Instantly, you’ll reduce the amount of interest you pay monthly – freeing up money for your budget or extra credit card payments.

There are two common types of debt consolidation:

Credit Card Balance Transfer

With a credit card balance transfer, your outstanding balances are moved to a new, lower-rate credit card (as in the example above). This process is simple, and you can often take advantage of promotional offers with lower introductory rates. Just make sure you review and understand any fine print pertaining to special rates or offers.

WARNING: Don’t “rate chase.” Many people will do balance transfers multiple times, opening a new credit card every time. The act of opening new cards and closing old ones so often can negatively affect your credit score.

Debt Consolidation Loan

A debt consolidation loan functions in the same manner, except the outstanding credit card balances are transferred to a lower-rate, closed-end, personal loan. This tactic often helps people reduce their debt quicker since you have set monthly payments (versus minimum monthly payments on credit cards). Plus, the interest rates on personal loans are usually much lower than traditional credit cards.

#3: Combat Temptation

While the economy plays a big role in surging credit card debt, it’s not the only factor. Other measures, including advertising, social pressures, and mental health, influence people’s spending habits.

When creating a budget, review your credit card statements. Identify frivolous expenses and determine what caused you to make those purchases. For example, many people shop when stressed, bored, or upset. Others feel pressure to keep up with the Joneses thanks to social media.

Understanding your spending habits and identifying what triggers you to spend is crucial. Here are some ways to avoid temptation:

• Unsubscribe from emails that tempt you to buy something (what you don’t know won’t hurt you)
• Unfollow brands and stores on social media (ignore the sales if you don’t need something)
• Delete shopping apps from your devices (stop making it easy to shop)
• Remove your saved credit card information from online shopping sites (make it harder to checkout)
• Use cash (set a budget for shopping and once it’s gone, it’s gone)
• Unlink your cards from Apple or Google Pay
• Pay attention to when you shop – are you bored? Stressed? Upset? Try doing something else to ease your mind

#4: Rebuild Your Emergency Fund

Once you regain control over credit card debt, focus on rebuilding your emergency fund. If the world taught us anything over the last few years, it’s that the unexpected should always be expected. Whether it’s record inflation or an unplanned medical expense, being prepared is vital.

Try to set aside three to six months of living expenses in an emergency fund. That is a lofty goal, but you don’t have to do it all at once. Set up payroll deductions or automatic transfers into your savings account, and let the balance grow steadily over time.

An emergency fund not only provides money to cover unexpected expenses, but it also shields you from relying on high-interest credit cards.

We’re Here to Help!

Overcoming credit card debt can often feel impossible, especially when factors out of your control, like the economy, are at play. However, with some help and the proper guidance, it’s much easier than you might think. We have free financial coaching available to help you make a budget, review your credit, or just get a handle on your finances.

If you’re interested in learning how debt consolidation can save you money, we’re ready to help. Call, text, or chat with us, M-F, 9am-4pm ET. (315) 671-4000.

¹https://www.newyorkfed.org/newsevents/news/research/2023/20230808

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.