Collectively, Americans are having a harder time keeping up. credit card bills. Part of the problem: Carrying a balance happens at some point. high cost.
Credit card rates climbed along with the Federal Reserve’s Series 11 rate hikes from March 2022. The average annual rate has increased from 16.34% at the time to more than 20% today, or almost an absolute record.
These APRs are down slightly — but not much — now that the Fed has cut interest rates by one half point on September 18 and is expected to lower its benchmark rate again at its meeting next week.
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Most credit cards have a variable rate with a direct link to the Fed benchmark.
However, a recent CardRatings.com Survey found that less than half – 37% – of credit cards surveyed changed their rates in response to the Fed’s September cut by the start of the fourth quarter.
In total, the average credit card interest rate decreased only 0.13% from the previous quarter, according to the report.
“When the Fed cuts rates, credit card rates often don’t drop as much,” Jennifer Doss, editor and credit card analyst at CardRatings, said in a statement.
“One reason is that credit card companies are cautious. After all, the Fed tends to cut rates when the economy slows. When that happens, consumer lending generally becomes riskier.”
Although more rate cuts are expected, consumers with credit card balances are unlikely to feel much relief, experts say.
“Interest rates took the elevator up, they’re going to take the stairs down,” said Greg McBride, chief financial analyst at Bankrate.com.
Rather than waiting For more modest APR adjustments in the coming months, there are other ways to tackle the high cost of variable rate debt.
Make paying off your credit card debt a priority
“Now is still a great time to prioritize paying off credit card debt, regardless of what the Fed decides,” said Sara Rathner, credit card expert at NerdWallet. “It’s not always possible to pay off a large balance quickly, but any extra money you can put toward your debt each month can make a difference over time.”
Whatever the Fed’s next moves, “look at where you are,” said Rod Griffin, senior director of consumer education and advocacy at Experian.
Cardholders who pay their balance in full and on time each month and maintain their utilization rate – or total debt-to-credit ratio – below 30% of their available creditenjoy credit card rewards and a higher rate credit score. This paves the way for lower cost loans and better terms.
Cardholders carry debts from month to month put themselves at risk of becoming trapped in a cycle of costly debt.
Renegotiating high interest credit card debt is a good betGriffin said. “There are better rates available.”
“If you’re not getting the rates you want, shop around,” he said. “Use your power as a consumer to switch to another provider.”
Alternatively, borrowers can call their card issuer and request a lower interest rate on their current card. The average reduction is around 6 percentage points, in 2023 LendingTree Survey found – and 76% of cardholders who requested a lower APR got one.
For consumers, it’s important to speak up, Griffin said, and tell their lender, “I can do better somewhere else, or you can do better for me.”
But ultimately, a key factor that determines the credit card interest rate you pay is your credit scoresaid Doss of CardRatings. “Credit card companies charge higher interest rates to compensate for higher risk. So customers with low credit scores tend to pay higher interest rates.”
