Federal Reserve May Cut Interest Rates Soon; Credit Card Debt Still A Major Burden

Economists believe the Federal Reserve will start cutting interest rates next month. But until then, borrowing money remains very expensive, especially for people with credit card debt.

Ali and Josh Lupo both graduated with significant student loans. Earlier this year, the couple turned to credit cards to make ends meet, accumulating $10,000 in debt.

"We weren't even really living a lavish lifestyle," said Ali. "Credit cards felt like an opportunity for us to kind of have a little more wiggle room."

A new report from the Federal Reserve Bank of New York shows U.S. credit card balances hit another new record, reaching more than $1.1 trillion in the second quarter, up 45 percent from 2021. Another survey from Bankrate finds that 50 percent of all credit card holders carry debt from month to month, up from 44 percent in January. The average balance is $6,200, and the average interest rate is near a record high of almost 21 percent.

"If you make minimum payments towards the average balance, which is about $6,200, according to TransUnion, those minimum payments keep you in debt for 18 years," said Ted Rossman of Bankrate.com.

Rossman suggests working with nonprofit credit counselors to consolidate debt as one way to manage finances. Another option is to transfer the current balance to a new card with a zero percent introductory rate and pay off as much as possible before the higher rate kicks in. The Lupos followed this strategy and developed a budget.

"We had never really calculated both how much we owed or how much that debt kind of radically impacted our lives," said Josh Lupo.

They also worked extra part-time jobs to bring in more cash. Today, the couple is free from credit card debt.