SAN DIEGO (KGTV) – Credit card interest rates are approaching all-time records, and the Federal Reserve’s latest 75-point rate hike has yet to factor in.
The average interest rate on a new credit card in June exceeded 20 percent APR, said LendingTree Chief Credit Analyst Matt Schulz. It’s the first time that’s happened since LendingTree began tracking the data in 2018.
“At a minimum, we're very near, if not at, record highs for credit card interest rates that anybody's ever seen,” Schulz said in an interview.
The Fed’s action this week to raise the interbank lending rate another .75 percent will spur credit card companies to raise interest rates in another month or two, he said.
“It’s not going to happen tomorrow. It’s not going to happen next week. But it’s a really good bet that it’ll happen in the next month or two,” Schulz said.
The Federal Reserve raised the federal funds rate .25 percent in March, .50 percent in May, and another .75 percent on Wednesday. That’s a 1.5 percent jump in the past few months.
Here’s a scenario to illustrate the impact. The average American has about $5,000 in credit card debt. Assuming that individual pays the minimum each month of $150, they would have paid $1,699 in interest over the life of the loan at the typical APR prior to the hikes, 16.17 percent.
With an additional 1.5 percent APR pusing rates to 17.67 percent, that person would rack up $1,949 in interest – about $250 more.
“We're already in uncharted waters when it comes to how high interest rates are on credit cards, and we're nowhere near the top. The Fed is going to be raising rates for quite some time, so these record high rates are only going to go higher,” Schulz said.
Here’s what you can do to save money. Schulz recommends opening a 0 percent APR balance transfer card. These cards offer 0 percent interest for two or more years. Some even offer 0 transfer fees.
Borrowers can also contact their existing credit card company and ask for a lower APR. “A lot of people don't realize that that's a thing that you can do,” Schulz said.
In a recent survey, LendingTree found 70 percent of consumers who requested a lower APR got one.