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How To Beat The Credit Crunch

American shoppers will charge a trillion dollars onto credit cards this year, as 78 million people put their purchases on plastic.

CBS MarketWatch Correspondent Alexis Christoforous reports that the approaching credit crunch has Federal Reserve chief Alan Greenspan worried, the Fed hiked interest rates on Tuesday, boosting them to a nine year high in an effort to reign in consumer spending and head off inflation.

And while it usually takes eight to ten months for an increase to affect the consumer, shoppers will eventually feel the pinch.

In 1999, the average interest rate on a major credit card was 15.65 percent.

Five interest rate hikes later, the current rate now stands at 16.86 percent. And with the latest Fed increase, it's expected to jump to 17.25 percent by July.

The average American carries $1750 per credit card. That means with current interest rates, the average person is paying roughly $480 a year in finance charges.

"Credit cards surely are not the best place to have your debts because the prices are exceedingly high," said CBS

columnist Marshall Loeb

If you can't pay off the balance on your credit cards, you do have options that could save you a lot of money:

  • You could move your credit debt to another card at a more favorable rate—just make sure you don't get hit with a transfer fee.

  • Credit union cards usually charge less.
  • You might want to take out a bank loan, which usually carries a lower interest rate, or borrow against your retirement plan, but you will risk a penalty.
  • For large debts, a home equity loan has an extra benefit.

    "Interest on loans up to $100,000 is deductible on your Federal income taxes," said Loeb.

    Borrowers must beware: If you don't pay off your credit card bills soon, your dollars could get squeezed even tighter.

    Market experts predict we're in for at least one more interest rate hike this year, and it could come as early as next month at the Fed's June meeting.

    Copyright 2000 CBS. All rights reserved.

    Category: Credit

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