Persistent inflation has put many households under financial pressure — more cardholders are carrying debt from month to month or falling behind on payments.
Credit card delinquency rates rose across the board, the New York Fed and TransUnion found.
“These are consumers who are struggling to afford their everyday expenses,” said Charlie Wise, senior vice president of global research and consulting at TransUnion. “They’re trying to keep the house of cards from collapsing.”
“Not only are balances higher but the cost of debt service on those cards is significantly higher,” Wise said.
Credit card rates spiked more than 5% with the Federal Reserve’s recent string of 11 rate hikes, including four in 2023.
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did, as well, and credit card rates followed suit.
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The average annual percentage rate is now more than 20% — also an all-time high.
At more than 20%, if you made minimum payments toward this average credit card balance, it would take you more than 17 years to pay off the debt and cost you more than $9,063 in interest, Bankrate calculated.
“Basically, for every person who’s using credit cards for convenience and to earn cash back and travel rewards without paying interest, there’s someone else who’s carrying a very expensive balance,” said Greg McBride, chief financial analyst at Bankrate.
Still, consumers often turn to credit cards, in part because they are more accessible than other types of loans.
“Americans are addicted to credit cards, no question,” said Howard Dvorkin, a certified public accountant and the chairman of Debt.com.
Overall, an additional 20.5 million new credit accounts were opened in the latest quarter, boosted in part by consumers looking for additional liquidity, Wise said. The tally of total credit cards hit a record near 538 million, TransUnion also found.
How to tackle costly credit card debt
“My top tip for paying down credit card debt is to sign up for a 0% balance transfer card,” McBride said.
Cards offering 12, 15 or even 21 months with no interest on transferred balances are out there, he added, and “these allow you to move your high-cost debt over to a new card that won’t charge interest for up to 21 months, in some cases.”
Borrowers may also be able to refinance into a lower-interest personal loan. Those rates have climbed recently, as well, but at 11.5%, on average, are still well below what you currently have on your credit card.
Otherwise, ask your card issuer for a lower annual percentage rate. In fact, 76% of people who asked for a lower interest rate on their credit card in the past year got one, according to a LendingTree report.