Singletary: Seven ways to tackle credit card debt as interest rates go up

Got credit card debt? Now is the time to develop a plan to pay down this debt as soon as possible because it will get even more expensive.

To bring down inflation, the Federal Reserve hiked its key interest rate by three-quarters of a percentage point last month — and it will likely do so again later this month. One fallout from this move is interest on credit card debt will go up.

The average credit card interest rate now tops 20%, according to Matt Schulz, chief credit analyst at Lending Tree. "The worst news for cardholders when the Fed raises rates is that it doesn't just raise rates on things you buy in the future," Schulz said. "The rate you pay on your current balances goes up, too, usually within a billing cycle or two."

Maybe you've been keeping your credit card debt around like a pet rock, pecking at it little by little with minimum payments or occasionally throwing some extra cash at the balance. Or perhaps your financial circumstances forced you to rely on credit to make ends meet.

Whatever your situation, here are seven ways to lower your credit card debt at a moment when interest rates are on the rise:

1. Stop charging to your credit cards.

Ever heard of the expression, "If you're in a hole, stop digging?" You've got to stop using your credit cards if you aren't paying off the balances off every month. Also consider whatever you charged will end up costing you more money in the long run if you keep revolving the debt.

2. Start paying off the smallest balance.

The question I get often when it comes to credit card debt is: Should I pay off my credit cards with the highest interest rate first or start with the one with the smallest balance?

On paper, the logical method would be to go after debt with the highest interest rate. But what works on paper doesn't always work in practice. The debt reduction method I recommend is what I call the "debt dash method." With this, like a 100-meter dash, the goal is to make a super fast run at the debt.

In my experience helping hundreds of people pay off credit card debt, their motivation to get rid of the debt picks up when they get a quick victory. The result is they become more aggressive in attacking what is left of the debt, ultimately paying less in interest charges than if they had started on the card with the highest interest rate. Part of the battle of debt reduction is sticking to a plan.

With the debt dash, you list all your debts starting with the one with the lowest balance. Then use any extra money you can find to apply it to that first card on your list while making the minimum payments on all other debts. Once you've knocked off that card, go after the next one on your list, and so on. If two cards have a similar balance, the one with the higher interest rate gets priority treatment.

If you have good credit, you may qualify for an offer that allows you to transfer your balances to a card with a 0% interest rate for a limited time. Zero percent balance transfer offers are still plentiful, Schulz said. "We're even seeing a select few cards offering a full 24 months interest-free," he said.

But as the Fed keeps raising rates and delinquency rates edge higher, those offers are likely to disappear, Schulz said. Instead of being able to find offers for 15 months to 20 months with no interest, consumers may end up finding 0% interest for nine months to 12 months, he said.

Generally, these cards are available to people with credit scores of 670 or higher, according to Ted Rossman, senior industry analyst at Bankrate.com and CreditCards.com. "The average FICO score is 716, so most people should be able to qualify," he said.

4. Talk to your credit card issuer. Talk is not cheap when it comes to credit card debt. Many borrowers struggling under the weight of their debt never ask for help, according to Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling.

Before calling your creditor, check your credit report and credit score, McClary said. It helps to know how strong a negotiating position you have.

5. Use debt consolidation or a personal loan. It makes sense to try to consolidate the debt and make one payment, especially if you can reduce the interest rate. But don't just focus on the monthly payment, McClary warns. "What you don't want to do is tinker with the terms so that you have this artificially low payment," he said.

You might get a lower monthly payment, but you might be dragging out the loan for years and end up paying more interest over time than what your issuer was charging.

6. Contact a nonprofit consumer credit counselor. If you don't feel comfortable negotiating with your card issuer, get help from a nonprofit credit counseling agency by visiting the National Foundation for Credit Counseling or calling 800-388-2227.

Working with a credit counselor, you can set up a debt management plan.

7. Consider bankruptcy as a last resort. I've helped a few seniors overwhelmed with credit card debt file for bankruptcy protection. For them, credit had become the bridge to extend their Social Security retirement benefit checks. It was how they made their meager ends meet. Bankruptcy gave them a fresh start.