It pays to take it seriously.
- While the economy is now stable, things could soon get worse.
- Making the mistake of going into debt could put you in a difficult financial situation in the short term.
Is the US economy headed for a recession? There’s reason to believe it might be.
But first, we have to go back and talk about inflation. Inflation has been skyrocketing since mid-2021, and this year price increases have really gotten out of control. This left many consumers in a position where they had to loot their savings or rack up credit card debt just to make ends meet.
The Federal Reserve, meanwhile, is eager to slow the pace of inflation. To do this, it has aggressively implemented interest rate hikes, the aim of which is to increase the cost of borrowing for consumers.
Why is it beneficial? The whole reason we’re stuck in this runaway inflation cycle is that the demand for consumer goods has long exceeded the available supply. If borrowing becomes too expensive, consumer spending could decline. This could then reduce the gap between supply and demand and help calm inflation.
But the Fed’s actions could also have negative consequences. On the one hand, they could trigger a recession, a recession that would lead to widespread unemployment. Second, even if we avoid a recession, higher borrowing rates could put those with credit card debt in a very precarious position.
That’s why Suze Orman insists that people with credit card debt should do their best to pay it off as soon as possible. Those who continue to carry this debt, she says, “are asking for so much pain.”
The Danger of Credit Card Debt Right Now
Credit card debt is usually bad news. This can mean racking up interest points and damaging your credit score. But right now, it’s especially important to try and pay off any credit card debt you have, says Orman.
With the Fed increasing rates, your credit card balances may soon become more expensive to pay off. This is because interest on credit cards is usually variable, so the interest rate you are paying on your balances now may not be the rate you will be charged next month or the following month.
Plus, says Orman, if a recession hits and you lose your job, then you could struggle to pay off your debt. And if you are only able to make your minimum payments in this situation, the amount of interest you accrue on your debt will only increase.
Plus, if you find yourself out of work, the last thing you want are monthly credit card minimums hanging over your head. And that’s why, she says, it’s time to pay off that debt once and for all.
How to quickly pay off credit card debt
If you’re sitting on a credit card balance, paying it off quickly is key. But how to get out?
One option is to make a balance transfer and transfer your balances to a single credit card with a lower interest rate – or maybe an introductory rate of 0%. This could make your debt less expensive as you reduce it.
Another option is to subscribe to a Personal loan and use its proceeds to pay off your credit cards. You’ll then have to pay that loan back, but at least personal loans come with fixed interest rates, so the rate you sign up for initially is guaranteed until you’re all paid.
Of course, both of these options simply involve moving your debt or swapping one type of debt for another. Ultimately, to get rid of debt, you’ll need to make an effort to spend less so you can spend more of your income on the amount you owe. Another option is to earn more money by getting a side hustle.
You may not be able to pay off your credit card debt in a few weeks, especially if you have a lot of it. But if you’re able to pay it back by the end of the year, you could dramatically improve your financial outlook and avoid the trouble Orman warns you about.
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