3 steps to reduce the cost of your debt when interest rates rise

Does the thought of settling your debts make you want to go back to bed? According to a June 2022 survey of NerdWallet conducted online by The Harris Poll.

That’s a lot of procrastination, and it’s no wonder why. Dealing with your debt isn’t exactly a fun way to spend an hour. Still, there are steps you can take that will make deleveraging more accessible. And there are ways to reduce interest payments, which will save you money while you work to pay down your balance.

“We see debt as, ‘Oh my god, I screwed up.’ That’s all caps crap,” says Kate Mielitz, a certified financial advisor based in Olympia, Wash., who holds a doctorate in personal financial planning. “Americans are struggling to pay off debt, struggling to save, and struggling to make things that we know are the right thing. We just have to say, ‘OK, that was yesterday. What can I do to take a step today?


The first and most difficult step is to understand how you got here. When Valerie Rivera, certified financial planner and founder of FirstGen Wealth in Chicago, works with clients, she helps them review credit card statements to categorize purchases and research spending habits. This makes it easier to create a new spending plan that leaves room for debt repayment.

Here’s why this part is essential: It gets you off autopilot. You may have made minimum payments on your debts because that’s what you thought you could handle. And while this approach will allow you to avoid late fees and impacts on your credit scores, it will keep you stuck in debt for much longer. If you can change your expenses slightly, you may be able to afford larger payments.

If you have $10,000 in credit card debt at 17% interest and are paying $150 a month for your balance, it will take 17 years (and cost $20,820 in interest) until that you are debt free. This assumes that you do not increase your debt balance during this period. But if you could double your monthly payment to $300, you’d spend $3,629 in interest and be out of debt in about four years.

“If you have debts, you are normal. It’s possible to pull through and deal with it,” Rivera says. “The number one thing is to face it and give yourself grace in the process.”


Freeing up more money to spend on debt is a start, but you may need to make additional changes to do more damage.

Rivera sometimes recommends temporarily limiting contributions to retirement accounts if your credit card interest rate exceeds the return you would get on your investments. She’s also looking to see if her clients can make more drastic changes to their lifestyle, like taking a scramble for more income or finding a roommate to lower their living expenses.

It can be helpful to work with a finance professional when making major changes. If the cost is limited, the Association for Financial Counseling & Planning Education offers free virtual individual sessions with accredited financial advisors for a limited time.


Combine the actions above with lowering your interest rate to save even more. Here are some strategies to consider.

  • ASK FOR A LOWER RATE: Call your credit card company and see if you would qualify for a lower interest rate. They might say no, but it doesn’t hurt to ask.
  • LOOK AT BALANCE TRANSFER CREDIT CARDS: These offers typically charge a one-time fee and require good credit (FICO scores of at least 690). But they let you transfer the debt to a card that charges 0% interest for nearly two years, depending on the card. You’ll save on interest, but don’t leave your debt hanging around without a plan. Try to pay off your debt before interest accrues and use debit cards or cash to make purchases so you don’t increase your debt.
  • EXPLORE LOAN CONSOLIDATION: A personal loan allows you to consolidate your high-interest debt into one low-interest monthly payment for a specified period, if you qualify.
  • TAKE OUT THE CAPITAL OF YOUR PROPERTY: A home equity loan or line of credit can provide low-interest financing that you can use to pay off your credit card debt. But you risk losing your home if you can’t pay your debt in the future, so be careful.

This column was provided to The Associated Press by personal finance website NerdWallet. Sara Rathner is a writer at NerdWallet. E-mail: [email protected]. Twitter: @SaraKRathner.

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