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U.S. consumers paying $104 billion in credit card interest and fees

The amount of money consumers in the U.S. churn out yearly in credit card fees and interest has crossed the $100-billion-mark, new research shows.

With interest rates climbing and credit card debt surpassing $1 trillion, consumers paid nearly $104 billion in charges during a 12-month period that ended in the first quarter (March 31), according to data from Magnify Money.

The research revealed that the current figure is more than the $93.7 billion recorded the previous year and 39 percent more than the $74.6 billion recorded in 2013. The researchersforecast that when it takes its yearly measurement after next March 31, the total amount paid in fees and interest during the preceding 12 months could be more than $110 billion.

This projection factors in four quarter-point increases in a key interest rate set by the Federal Reserve. However, while it’s quite unclear what exactly the Fed will do and when action will be take, one thing that’s certain is: Whenever that rate does increase, credit cards typically will follow suit within a day or two.

The Federal Reserves already boosted rates twice this year by a quarte-point every time—following an increase of three quarter-point last year and one each in 2015 and 2016. At the latest meeting, Federal policymakers indicated that two more hikes are likely to happen this year, with gradual increases continuing into 2019.

From a historical point-of-view, while the current 2 percent is minimal, credit card interest rates climb much higher than that of the federal rated.

However, for consumers who are constantly buried in debt and unsure of how to dig themselves out, there’s the need to strategize and more importantly search out ways to pay down the debt like acquiring a personal loan and paying a much lower interest rate.

“You need to come up with a plan to get out of debt,” said Nick Clements, co-founder of Magnify Money in a report. “It needs to be concrete and it needs to have an end date.”

Consumers might be able to consolidate their credit card debt into a personal loan and by doing so, pay a much lower interest rate depending on their credit score.

However, for most lenders, rates on these loans varies widely—ranging from about 4 percent to as high as 36 percent. Therefore, the better your credit score, the better rate you’ll get. Also, the amount of money being borrowed—alongside the duration of the loan—will affect the interest rate.

While traditional lenders like banks and non-banking financial companies usually require borrowers to provide collateral in the form of high-value assets—such as self-owned property, a car, or gold—in return for a personal loan, getting a collateral-free loan requires no assets to be provided by the borrower. This provides a great opportunity for ‘new-to-credit’ consumers to get credit through new-age digital lending platforms. Also, with collateral-free loans, borrowers are not required to provide a guarantor while applying for a personal loan.

However, to overcome debt consumers would equally need to address another problem; the psychological one.

“You have to deal with the reasons why you ended up in debt anyway,” Clements said. “If it’s because of a [spending] mindset, that needs to change.”

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