Control Your Debt Before It Controls You

Control Your Debt Before It Controls You

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As we watch with contentment as CD rates continue to rise,  we know there is also an unmistakable down-side to the Federal Reserve’s persistent rate increases. If it hasn’t already, it will soon be making its debut in a wallet near you: higher interest rates on credit card balances.

Don’t get us wrong, you can still get 0% introductory rates on lots of cards, assuming you have good credit. But once that introductory period is over, watch out. We’ve already seen as high as 27.99% and it could go even higher.

Finding an average was more difficult than we expected. Depending on who you ask, the average rate in the U.S. today ranges from 16% to over 22%. That makes paying off those debts a lot more difficult and a lot costlier.

And with no end to these rate increases in sight, paying off credit cards, and any other variable rate loans you may have, should be at the top of everyone’s to-do list. You’ll be amazed at what a difference it can make.

For example, let’s say you have a credit card with a $5,000 balance on it and the current rate is 10%.

If we assume the minimum payment is interest plus 1% of the balance each month, it will take over 20 years to pay it off and will cost $3,762 in interest. So, by the end, you will be paying $8,762 to pay off that $5,000 debt.

Now let’s instead, budget $100 to put toward your monthly payment—(just $8.33 more than the beginning minimum of $91.67). You’ll reduce the amount of interest from $3,762 to $1,495 so your total finance cost will go from $8,762 down to $6,495 and you’ll pay it off 15 years sooner. If you can afford to pay even more than $100 each month, your finance savings will be even greater.

Conversely, if that interest rate (APR) goes up from 10% to 16%, making the minimum monthly payment (which starts at $116.67), you will be paying $6,126 in interest alone. That’s more than the original balance. You would have to make monthly payments of $161 to get total interest charges under $1,500.

If your APR goes up to 24%, your minimum payment will start at $150 and interest will cost you $9,332. I think we can all agree, it’s better to try to control this narrative ourselves, instead of having it control us. In any event, this underscores the importance of paying off these debts as quickly as possible. It can be the difference between a little short-term discomfort and a lot of long-term pain.

Of course not everyone will be in a position to be able to pay their debts off so quickly. That will inevitably lead to a rise in delinquencies. In fact, we’ve already begun to see an uptick. Not only did the dollar amount of credit card loans by U.S. banks increase by over 14% (to $903.452 billion), the following developments arose in the quality of those loans:

Credit Cards at U.S. Banks:

June 30, 2021

June 30, 2022

Charged-Off (1st 6 months)

2.73% 1.92%

90 Days + Delinquent



30-89 Days Past Due 0.73%


The last row shows a 21 basis point increase in early-stage credit card delinquencies. This is a leading indicator and suggests that the 90 days or more delinquent loans are about to swell as well. These numbers are bound to get worse as rates continue to rise.

The banks listed on page 7 each reported year-over-year growth in their credit card loan portfolios of at least 2%. They also each reported that delinquent credit card loans (those 90 days or more past due) were on the rise during the same period. (Reminder: this was prior to the latest three Fed rate increases.)

We will have our eyes on all of these banks but two, in particular, look as though their underwriting requirements could use some tightening. They both have Credit Card Specializations and call Utah home: 3½-Star Comenity Capital Bank (also known as Bread Savings), Draper, UT and 3½-Star Merrick Bank, South Jordan, UT.

As credit card banks, its not a surprise that they each have more than 80% of total loans tied up in credit cards; Comenity Capital actually has more than 97%. In the 12 month period ending June 30, 2022, Comenity Capital Bank grew its credit card loan portfolio by 26.5%; Merrick Bank grew its by 30.5%. At the same time, credit card delinquencies are on the rise. As a percent of credit card loan balances, Comenity Capital reported that 2.4% were 90 days or more past due at June 30th. Merrick Bank’s was even higher with a 4.2% delinquency rate.

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