High interest rate debt is a lot like the beloved arcade game whack-a-mole. Even after consistently working away at it, due to the hefty interest charges, it just keeps popping back up.
The average interest rate on traditional credit card debt is 19%, while some personal loans can have rates well above 30%.
This means that a $5,000 credit card balance at 20% interest would cost $1,000 a year in interest. There are so many more fulfilling ways to spend that type of money. Weekend getaway, anyone?
Do this (rough) math for your debt: your debt x interest rate = annual interest paid. So what can you do to tackle it?
1. Consolidate or Swap Your Debt
Example: If you have $2,000 of debt on one credit card with 20% interest, and a $1,500 loan at 25% interest, you could get one single loan with a lower rate and use it to pay off your other cards.
What types of debt have lower rates than traditional credit cards?
Home Equity Lines of Credit (HELOC) - If you own a home, you may be able to get a loan called a HELOC, which uses your home as collateral. HELOCs have lower interest rates than other types of debt.
Personal Lines of Credit - If you have a decent credit score, you may be able to get one of these at a low rate. You can check your credit score for free here using Borrowell.
2. Use KOHO for Everyday Spend
Try moving away from credit cards until you’ve got your debt under control.
With KOHO, you can’t spend beyond your means. When the balance is $0, that's it! RoundUps, cash back, and Goals will also help you easily squirrel away money to help pay down your debt.