American cardholders paid $163.89 billion in credit card interest and fees in 2022, according to a WalletHub analysis of data from the Federal Financial Institutions Examination Council.
Between 2018 and 2020, such charges were roughly $120 billion per year, according to a report from the Consumer Financial Protection Bureau.
Credit cards are likely going to be even more expensive for the average consumer this year.
"As bad as things have been for cardholders for the last year or so, it's probably going to get a little worse for a while before it gets better," said Matt Schulz, chief credit analyst at LendingTree.
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The Federal Reserve has implemented four rate hikes so far in 2023, and experts expect more could be coming before the end of the year. Card interest rates have hit record highs and outstanding balances have been climbing.
Advocates target late payment penalties as 'junk fees'
The Biden administration has focused on cracking down on "junk fees" with the Federal Trade Commission and the CFPB in all areas of consumers' lives, including certain credit card penalties.
Some credit card companies charge as much as $41 for a missed payment. The goal is to reduce late payment fees to $8, ban late-fee amounts that go over 25% of the cardholder's required payment and end the automatic annual inflation adjustment, the CFPB said in a statement.
These charges are significant for lower-income households that may pay these fees constantly, amounting to almost a few hundred dollars over the course of a year, said Schulz.
Proposed changes are meant to fill gaps in the Credit Card Accountability Responsibility and Disclosure Act of 2009, or CARD Act. The law imposed guardrails on credit card companies such as price controls on penalty fees and specific conditions in which they can be charged. However, there is no restriction on how much APR a company can charge nor language on late fees.
How to minimize credit card fees, interest
Cardholders paid on average $76.27 in fees and interest per credit card account in the fourth quarter of 2022, WalletHub found. Considering this, it's worth looking at ways to lower these additional charges.
"Life is so expensive in 2023 and it's not going to get any cheaper any time soon," he said.
1. Ask your card issuer for a break
Cardholders "can ask their card issuers for help," Schulz said. Those who do "are more successful than most people realize," he said.
For instance, more than 3 in every 4 cardholders who asked for a lower interest rate on one of their credit cards in the past year got one, according to LendingTree. Almost 90% of people who called their issuer about a late fee were able to get it waived, a 2022 WalletHub survey found.
If you ask your card issuer to lower your interest rate, they may run a credit check to see if anything has changed with your financial situation since you opened the card. However, the savings you may get with the lower rate may be worth taking the "little hit on your credit score," said Schulz.
2. Use autopay, but remember it 'isn't perfect'
Consider setting up automated payments for your credit card statements so that you don't miss a payment or accidentally pay late.
However, don't lose sight of your monthly statements because "autopay isn't perfect," said Schulz.
Autopay makes a lot of things easier but it doesn't absolve people of the responsibility for still keeping an eye on things.Matt Schulzchief credit analyst at LendingTree
You could still end up paying late if you don't monitor the due date, and you may not be paying enough to cover the minimum if your balance is higher than expected. To avoid paying more in interest and fees, try to make sure you cover the entire statement balance.
"Autopay makes a lot of things easier,
but it doesn't absolve people of the responsibility for still keeping an eye on things," added Schulz.
You can also ask to change your due date to make it more convenient, said Sara Rathner, credit cards expert and writer at NerdWallet. You're aware of how much money you have available in your checking account this way before an automated payment goes through.
3. Avoid surprises
Take advantage of opportunities to mitigate surprise charges and get the information you need about your card, said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California.
Make sure you're aware of your charges, whether that means routinely checking your statements or setting up push notifications every time your credit card is charged, said Sun, a CNBC Financial Advisor Council member. That can help you spot fraud and be aware of fees and interest you've accrued.
Finally, if you haven't reviewed the terms and conditions with your credit card company in a long time, contact your issuer's customer support and ask for a list of fees and how much each costs.
"You can always contact your card issuer and ask basic information about the card you have," said Schulz.
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