With the average credit card interest rate around 21%, consumers having to shop around before applying for a new line of credit can make any amount of debt very expensive to take on.
Credit card interest rates, or Annual Percentage Rates (APRs), have been rising recently along with repeated increases in the Federal Reserve interest rate, which are intended to slow the economy and calm inflation.
the The average annual interest rate for a credit card has recently increased to 20.92%.which is higher than at any time since the Federal Reserve began tracking annual interest rates in 1994, according to a Stady From WalletHub.
Experts warn that with interest rates so high, credit card debt can add up quickly. Their advice is to read the fine print and see what you might be charged before you sign up for a new card – even if at first glance it seems like a good deal.
“Just because you advertise a low price doesn’t mean you’ll qualify,” said Lori Gross, a financial advisor at Outlook Financial Center in Troy, Ohio. “You have introductory offers on the cards which can be a way to get a low rate initially, but after 12-13 months the APR will jump.”
A credit card APR certainly only affects cardholders who do not pay their fees in full each month and carry a balance from one billing cycle to the next.
“The best people can do is make all these high interest rates moot by paying off their bill every month, but that’s a lot easier said than done when everything has been costing more and more day by day for years,” Matt Schulz, credit analyst for LendingTree, said. CBS MoneyWatch.
‘Crazy time for interest rates’
Given the current economic climate, lower interest rates on new card offerings are few and far between.
“I personally don’t think there are any good APRs on the cards right now; they’re all very high with everything that’s going on in the economy,” Gross told CBS MoneyWatch.
Also, cardholders’ rates can fluctuate based on their credit score, which means that not everyone qualifies for the credit card company’s advertised rate. But even the lowest APRs these days are pretty steep.
“Right now, even with excellent credit, you’re still looking at about 17% APR, which is pretty high,” Gross said.
Schulze estimates average rates are even higher, at 20% and up. In his view, APRs between 15%-17% are a relatively good deal right now.
He said that of the 200 cards he’d reviewed recently, there were as many with interest rates of at least 30% as there were cards with 15% interest.
“It’s just a crazy time for interest rates even at already high credit card standards,” he said.
0% introductory offers
Americans who are currently paying high interest on balances they haven’t yet paid off can make a difference by applying for new credit cards that offer 0% interest for an introductory period, usually 12 to 14 months.
“A 0% balance transfer credit card is the best weapon you can have in your arsenal against credit card debt. You generally need very good credit to have one of these, but it can save you a lot of money and interest,” said Schulz.
It’s a good tool as long as consumers use the grace period to actually pay off their debt, rather than spending more money.
“The key is not to think of a credit card as an excuse to spend again, because if you do, you completely defeat the purpose,” Schulz said. “But if you use the card wisely, you can save a lot of money and interest.”
Don’t forget to negotiate
Experts said that consumers who carry credit card balances can take other steps to reduce the cost of borrowing.
First, credit cards compete on rates, wanting to keep customers you’ve already connected as customers.
“The market is still relatively competitive and credit card companies don’t want to lose out on people who already have a problem,” said personal finance expert Howard Dvorkin, founder and chairman of Debt.com. “The CPA to get someone is maybe $400-$500, so they’re going to try to hang on to you.”
This means that it is wise to contact your lender and ask for a reduced APR. Schulz advised looking at rates offered by other card companies to use as leverage.
“The best way to do that is to look at some of the other offers you might have received and go to your credit card issuer and say, ‘I’ve had this card many years ago, but I was just offered this 17% rate and my current rate is 22%,'” she says. Will you be able to keep up with it? “A lot of people feel anxious about negotiating these kinds of things, but coming there after seeing other offers for which you qualify can help you frame the conversation in a useful way.”
Almost 70% of people who asked for a lower interest rate last year succeeded, Schulz said. He added that the rate of reduction amounted to about six percentage points. In other words, a customer with an annual interest rate of 25% could see their rate drop to 19%.
“It’s important,” Schulz said.
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