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While credit cards have long been known as an expensive form of debt, card annual percentage rates (APRs) have risen dramatically in recent years. In fact, the average APR almost doubled in a decade and hit the highest level ever recorded in 2023, according to the Consumer Financial Protection Bureau .
In May of 2024, the average credit card interest rate was at 21.51%, according to data from the Federal Reserve Bank of St. Louis . These high rates have left many feeling like they're drowning in debt and desperate for debt relief .
The good news is that the Federal Reserve may soon lower the benchmark interest rate. "All signs point to the Fed decreasing rates by 25 basis points each of the next three times for a total of 75 basis points," says Domenick D'Andrea, AIF, CRC, CPFA and co-founder of DanDarah Wealth Management.
Does this rate cut mean that debt relief is on the horizon, though? Not necessarily any time soon, according to experts.
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When will credit card interest rates drop? Here's what experts say
There's good news and bad news for cardholders hoping for fast relief from debt . A slight decline in rates may be imminent.
"I think if the Fed starts cutting rates you will see a drop in APRs for most credit products, including mortgages, auto loans, and credit cards," according to credit expert John Ulzheimer, formerly of FICO and Equifax.
"If you look at the average APR on a credit card back when the federal funds rate was 0 or near 0, the average credit card APR was about 16-18%, depending on your source," Ulzhiemer says. "Now that average is around 24%, give or take. And while the increase in the average isn't exactly the same as the increase in the federal funds rate, it's pretty darn close."
Credit cards typically have variable rates, with the APR equal to the prime rate plus the APR margin. While the Federal Reserve doesn't control the prime rate, many banks use the Fed's rate target as their benchmark when setting the prime rate.
That federal funds rate could soon fall. D'Andrea believes cuts are likely at the Fed's next three meetings and this isn't just optimism. Federal Reserve Chair Jay Powell recently commented that "the time has come for policy to adjust," implying a cut could come as soon as the September meeting.
Unfortunately, while credit card rates may fall when the Fed acts, the change may be negligible. While Ulzheimer believes rates will decline, he also cautions that "whether we see a meaningful reduction in credit card interest rates with a modest 25-50 basis point drop in the FFR is a different story."
Leslie H. Tayne, a New York financial attorney and founder and managing director of the Tayne Law Group, P.C, agrees.
"I don't believe rates will drop that much initially," Tayne says. "We'll likely see the rates decrease anywhere from half a percent to one percent."
Tayne does note that some card issuers may act to drop rates more aggressively if they're "seeking a competitive advantage," and suggests that "we might see lower introductory rates as we approach the holiday season to entice consumers to spend during the season."
In general, though, cardholders aren't likely to see a big drop any time soon, and Tayne believes consumers are likely to get the best rates through 0% APR offers for the foreseeable future, rather than the standard purchase rate.
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A bigger rate drop may occur late in 2024 and into 2025
While an immediate rate reduction may not be in the cards, rates could continue to fall over time. However, much of this depends on how aggressive the Federal Reserve is.
Ulzheimer says that an industry-wide meaningful reduction in credit card rates likely won't come until we see "several hundred basis points chopped off the federal funds rate."
Tayne also warns that the process will take time, suggesting we may not see a meaningful cut until at least the end of the year.
"We saw rates increase quickly when the Fed raised rates, but they typically take longer to decrease," Tayne says, warning that card issuers who've been raking in money are likely to keep higher rates in place as long as possible.
The era of high rates could be here to stay
Consumers disappointed by the fact that an impending Fed rate cut won't provide immediate debt relief have another problem to worry about.
The Consumer Financial Protection Bureau indicates the Fed's post-pandemic rate increases are not the only driving force behind today's high credit card interest rates. Instead, a CFPB analysis shows that "nearly half of the increase in average APR over the last 10 years has been driven by issuers raising their APR margin."
That's the margin card issuers tack on over-and-above prime rate. The CFPB found this margin hit the highest point in history at 14.3% and that this higher APR margin "drove about half of the increase in credit card rates over the last decade."
If card issuers continue to favor higher APR margins, a drop in the fed funds rate may have a more negligible impact over the long term than cardholders may be hoping for.
The bottom line
None of this is good news for those in need of debt relief . But, as Ulzheimer explains, "what is good news is interest on credit cards is optional. If you pay your balance in full then this fed funds rate and credit card APR discussion is meaningless because you're not paying interest anyway."
Unfortunately, if you're already in credit card debt, it's difficult to climb out of the hole — especially with persistent high rates. It may be worth exploring solutions such as debt consolidation , which could potentially save you thousands if you can get a low-rate consolidation loan to pay off your costly cards.
There are also debt relief companies that can help you explore all of your options, including negotiated payment plans or debt settlement. Debt relief isn't always worth it , and there are plenty of red flags to watch out for. Still, it could be worth considering the pros and cons and researching the dos and don'ts of debt relief if news that rates may stay high has you panicking about your credit card balance.
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