Credit card interest rates hit record high — here's what to know
Credit card interest rates reached their highest level in 37 years, according to one measure, rising at the fastest clip on record since the start of the year.
The average credit card APR hit 19.04% in the second week of November, according to Bankrate’s database that dates back to 1985, topping the previous record of 19.00% in the first week of July 1991. The rate has jumped 2.74 percentage points since the start of the year, the largest year-to-date increase.
The rapid rise in rates this year underscores how much the Federal Reserve’s efforts to fight inflation affect borrowing costs and how quickly interest could accumulate for Americans who carry credit card debt.
“Increases tied to Fed actions typically show up on cardholders’ statements within a billing cycle or two,” Ted Rossman, senior industry analyst at Bankrate, said in a statement. “And Fed rate hikes affect new and existing credit card balances.”
Here’s what you can do.
First, understand what’s at stake when it comes to rising interest rates. Say you owe $5,000 in credit card debt and pay just the minimum, it would take you 185 months and $5,517 in interest to pay off your debt at the 16.3% rate from the start of the year. Now at 19.04%, that increases to 191 months and $6,546 in interest. That’s real money and time.
One way to reduce those balances quickly is to sign up for a 0% balance transfer card, if you qualify. You can shift your current high-cost credit card debt over to a new card with a 0% promotional rate lasting as long as 21 months. There is, however, a 3%-5% transfer fee, but that long interest-free period will give you some breathing room to start paying the balance down.
Automating your monthly payments from your checking account for recurring bills and paying more than the minimum is the ticket to getting a grip on the debt and whittle away at it.
Alternatives also include a low-rate personal loan, perhaps as low as about 6% over five years if you have strong credit, Rossman said.
If you have multiple balances across several cards and a balance transfer card or personal loan won’t cover the total debt, throw as much money each month at the one with the highest APR first, while still making payments on the rest. That’s the best way to diminish the interest charges.
A nonprofit credit counselor may also be able to negotiate with your credit card issuers to give you a break on rates, but you will pay a fee for the service. The Justice Department website provides a list of approved credit counseling agencies.
No matter which strategy you choose, the time is now to get that credit card debt under control.
Kerry is a Senior Columnist and Senior Reporter at Yahoo Money. Follow her on Twitter @kerryhannon
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