Credit card interest rates spike, post-Fed

  • On the heels of the latest Fed rate hike, credit card interest rates are at record highs.
  • The average APR is now over 17 percent, according to CreditCards.com's latest report.
  • That means it's time to aggressively pay down debt.

If you're running up a tab on plastic, this could be a breaking point.

Just a little over a week after the Federal Reserve's latest quarter-point interest rate hike — the eighth such incerase in two years — credit card rates are near record highs.

The average credit card interest rate is now 17.01 percent, according to CreditCards.com's latest report. That's up from 16.15 percent one year earlier and 15.22 percent two years ago.

Most credit cards have a variable rate, which means there's a direct connection to the Fed's benchmark rate, and as interest rates rise, cardholders get squeezed. The central bank has also indicated there will be more rate hikes to come.

"Everyone in America should expect that their rates will be going higher for the foreseeable future," said Rebecca Walser, a tax attorney and certified financial planner in Tampa, Florida.

At 17 percent, "even the interest on a $1,000 balance is going to be very impactful," added Ted Rossman, an industry analyst at CreditCards.com.

Meanwhile, the average household with credit card debt has a balance of $5,700, according to the Federal Reserve's latest survey of consumer finances. Total credit card debt has reached its highest point ever, surpassing $1 trillion in 2017, according to a separate report by the Fed.

Source: WalletHub

"One of the most important things you can do when you've cut all you can but still have debt is reduce the interest rate you're paying on it," Walser said.

If you ask your credit card issuer to drop an annual fee, waive late charges or reduce your interest rate, your credit card company is highly likely to say yes, according to a separate survey also from CreditCards.com.

The success rate, while good across the board, varied based on the type of request cardholders made:

  • 85 percent who asked received a higher credit limit.
  • 84 percent had a late payment fee waived.
  • 70 percent got their annual fee dropped or reduced.
  • 56 percent received a lower interest rate.

Despite those odds, only a small number of cardholders are making each type of request, mostly because they aren't aware it's an option.

Alternatively, cardholders carrying debt can also shop around for a better rate or snag a zero-interest balance transfer offer. Then, begin to aggressively pay down the balance. (Rossman recommends the Chase Slate or American Express Everyday, which both offer 15 months at 0 percent if you make the transfer within the first 60 days of opening the account.)

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On the upside, credit card fees, including late fees and balance transfers, are now less common than they have been in the past.

The average credit card now charges 5.5 potential fees, down from 5.9 a year ago, CreditCards.com found. The most common fees are for late payments, which can be as much as $38 a pop, cash advances and balance transfers, which can range from 3 percent to 5 percent.

At the same time, credit card delinquencies are also down, according to the latest report by the American Bankers Bulletin. The report defines a delinquency as a payment that's 30 days or more overdue.

Delinquencies fell to 2.93 percent of all accounts, below their 15-year average of 3.55 percent.