Try holding your credit card up to your ear, really close. You may hear a soft tick, tick, tick of your interest rate going up.
According to the financial information site Bankrate, the average US credit card interest rate was recorded at 16.41% as of May 4. July 6, up to 17.01%. 17.67% as of August 17th.
In fact, ever since CreditCards.com began compiling the data 15 years ago, such rates have been at a record high. And more Federal Reserve rate hikes are expected, in an ongoing effort to rein in inflation, putting upward pressure on lending rates across the board.
"Before credit cards were expensive, now they are more expensive, and by the end of the year they will be even more expensive," says Ted Rossman, senior industry analyst at CreditCards.com.
This is clearly bad news for consumers who were increasingly burdened with debt in the second quarter of the year.
National credit card debt increased by $46 billion for the quarter and $100 billion compared to the same period last year, according to the New York Fed's new Home Debt and Credit Report. The 13% year-over-year increase is the biggest jump in 20 years.
Large debt, coupled with high interest rates, are putting some household balance sheets in the danger zone.
"Credit-card interest rates always go up and never go down," says Ed Mirzvinsky, senior director of the federal consumer program for advocacy organization US PIRG. "Banks are getting away with it, and have been for a long time. They raise rates whenever they get a chance."
Often the increase is due to variable-rate cards that are tied to the prime rate, so when that rate rises (currently 5.5%), it is passed through to borrowers. Other time rate increases may be due to late or missed payments, which violate the original contract and allow lenders to reset to a higher percentage.
It can be difficult to push back this rising tide of credit card interest rates, but you are not powerless. Here are tips from experts.
Ask For a Reduction In Rate
Call your lender, and see if they're liable for a lower rate – something they're more likely to do if you're a cardholder in good standing for a long time, not someone who makes late payments. Or is hitting against the credit limit.
When US PIRG tried it once with a sample group of consumers, there was a 56% reduction – cutting the rates of successful candidates by more than a third on average.
Transfer Balance
There's a great way to reduce those double-digit interest rates right away: Arrange a balance transfer to a new card. Obviously you still have to pay the amount, but at least you can enjoy the extended introductory period of 0% interest.
Key offers currently include Wells Fargo Reflect, Citi Simplicity and Citi Diamond Preferred. Just try to be prudent with balance transfers, says Mirzvinsky, because frequently closing old accounts and opening new ones isn't ideal for your credit score.
Pay More Than The Minimum
While receiving the monthly statement, many cardholders only send back the minimum amount due. But you're playing directly into the hands of lenders — generating interest income that makes banks $100 billion a year, according to the Consumer Financial Protection Bureau.
As an example, a $10,000 loan on a 20% rate card, making a small monthly payment of $200, would cost you an additional $11,000 in interest alone over time (and would take 106 months to pay off). So go above the minimum as much as you can, and ideally don't carry a month-to-month balance at all.
View Options
There are other loan options that can be better for soaking up to 20-25%. A personal loan from your bank is one solution—which currently averages about 10%, says Rossman. For someone with good credit, rates can be as high as 6%. Or even a non-profit credit counseling firm like Money Management International can help put you in a single loan at a lower rate.
Use Rewards Carefully
Cash back, points, and other programs only make sense if you're paying off the card in full each month.
"If you're getting a reward of 1-2%, that's fully offset by the cost of keeping a balance at an interest rate of 15-25% or even higher," says Mirjavinsky. "People are being manipulated into using their cards more and more – and credit card companies are laughing all the way to the bank."
