National Homeownership Programs
Interest rates on mortgages are at record low levels, but the interest rate on another staple of consumer credit – credit cards – have not come down alongside. That’s the news from The Wall Street Journal recently, which reported that credit card interest rates are at the highest relative level in more than 20 years.
The average consumer who carries a balance on a credit card is paying nearly 15 percent interest, more than three times the cost today of a 30-year fixed rate mortgage loan.
But while credit cards are necessary for many consumer transactions today – reserving a hotel, rental car or for shopping online -- the wise use of credit cards will save money.
Here’s some advice that NeighborWorks organizations that offer financial literacy and capability training are telling their customers:
- One of the best ways to avoid running up expensive credit card balances is start and maintain a savings plan. Unexpected costs that might force a consumer to reach for a credit card can be mitigated if savings have been built for emergencies.
- If a credit card has to be used for an unforeseen expense, consumers should immediately begin adjusting their other expenses to pay off the credit debt as quickly as possible.
- Use the right credit card. Not all credit cards are created equal. Some have high annual fees just for having the card, while others charge much higher interest rates than the recent national average of 14.7 percent. Seek out the advice of an unbiased financial counselor or advisor when choosing a credit card. Select NeighborWorks organizations and other nonprofits can help.
- Don’t carry the credit card in your wallet or purse. Remember, the best use of credit is for emergencies, not every day purchases. Leave the plastic at home and you’ll be less inclined to use it – and to stay within a spending plan and budget.
- Plan large purchases without relying on credit. According to an article in the Independent Retailer, nearly three-quarters of consumers have rediscovered the benefits of buying an item on layaway.
Buying items that exceed your weekly or monthly budget on layaway, or paying a little bit of the purchase cost over time, cuts down on the use of credit cards and their high interest cost. Inquire at your favorite retailer to see if they have a layaway option.
The bottom line is that even though credit card interest rates are climbing, consumers don’t have to risk a financial fall by using them.