The average variable rate across credit cards profiled by Bankrate surged over 17% for the first time on May 30th, 2018. Considering the average household with credit card debt carries $9,100 on credit cards alone, this new record could have stark consequences for consumers. Obviously, higher interest rates mean higher ongoing costs for those struggling to pay down debt or keep their finances afloat.
Greg McBride, Chief Financial Analyst at Bankrate.com, says there is one main driver pushing rates higher — the Fed.
“As the Federal Reserve continues to raise interest rates, this will push credit card rates still higher,” he says. How high will they go? Like the stock market or housing prices, nobody really knows. But we do know one thing — higher interest rates are here and it could all get a whole lot worse before it gets better.
How to deal with rising credit card interest rates
If you have a variable rate card and worry about your debt, there are a few steps you can take to reduce losses. The most obvious one — which may also be the hardest — is tightening down the hatches, getting the family on a budget, and paying off as much debt as you can.
Since lower balances mean less interest is charged, paying down debt can have a marked effect on how quickly you make progress. If you keep making the same monthly payments even as your balances drop, you may also enjoy a snowball effect since more and more of your payment will go to principal each month.
Another strategy to consider involves getting yet another credit card, but a different type than you’re used to. “Consider a low rate balance transfer offer that gives you a tailwind toward debt repayment by insulating you from further increases during the introductory period,” says McBride.
Many balance transfer cards offer 0% APR for up to 21 months, making it easier to pay down debt at a rapid pace. With a zero interest credit card, every penny you throw at your debts will count — at least during your introductory offer. After that, the rate resets to a variable rate, based on your creditworthiness.
Keep in mind, however, that some balance transfer cards charge an upfront balance transfer fee of up to 5% while others do not. If you want to avoid fees, the Chase Slate offers 0% APR for 15 months with no balance transfer fee on balance transfers made within the first 60 days of account opening.