Why are credit card interest rates so high?

Americans are doing a historically poor job of saving money and racking up credit card bills — just as the interest they pay on those cards is skyrocketing.

The outbreak of COVID-19 has prompted many households to adopt better financial habits. Americans saved 33.8 cents on the dollar in April 2020. That number dropped to just 3.1 cents on the dollar in September 2022.

Meanwhile, the average credit card interest rate is 18.9% APR. Retail credit cards hit a record high of 26.7%. And you might want to sit down for this one: The average store-only credit card now charges 28.2% interest.

Why does this happen? That’s what a Clark Howard podcast listener recently asked.

Why are credit card interest rates skyrocketing?

Soaring credit card interest rates have recently piqued the interest of at least one member of Clark’s audience.

Phil from New Hampshire asked, “Why do credit card companies charge such high interest rates? My APR rate is over 20%. »

Credit card rates are, of course, variable. And just like mortgage rates and savings account interest rates, which are also skyrocketing, credit card rates rise when the Federal Reserve raises interest rates.

“[Those] who are running, your back is already against the wall. And credit card interest rates just hit an all-time high. People running sales are their prisoners, and they’ll just eat you,” Clark says.

“Rates above 20% were unusual a year ago. Not at all now. The key, Phil, is that when you’re able to never pay a penny in interest to a credit card company again, your life in the future will be so much better and you’ll have so much more control.

Nobody knows when the Fed will stop raising interest rates. He seems determined to do so until inflation goes down. But it has raised rates in six straight meetings, raising rates 3.75% this year, the most in a single year since the 1980s.

So expect rates to stay high. It is possible that they will continue to increase in the short term.

What can you do to pay off your credit card faster?

If you currently have a balance on a credit card, you are not alone. However, credit card debt tends to stick around. And the higher the interest, the longer it will last, because more of your payments will go to interest.

According to a recent survey by CreditCards.com, 60% of people who have credit card debt in 2022 owe their creditors for at least 12 months. That’s a 10-point increase from data collected on the same question in a 2021 poll.

Clark.com credit card expert Nick Cole recently wrote an article highlighting the extent of a credit card debt problem right now and what to do about it. Clark also offered a simple trick to pay off your credit card faster.

Final Thoughts

Whatever your financial goals, nothing will serve as a cumbersome, stubborn anchor like high-interest credit card debt.

Clark isn’t the most militant about never having debt. But he’s always taken a tougher stance against credit card debt in particular.

“If you don’t have balance now, great,” he says. “Remember how much the credit card companies are going to charge you if you do. Do you have a balance right now? Make it a priority to give it up if you can.

Want to join a group of Clark.com readers who encourage and help each other pay off their debts? Check out our “Ditch Your Debt” Facebook group. You can also contact our Consumer Action Center at 636-492-5275.

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