Credit Card Rates Hit Record High as Borrowing Costs Soar Amid Fed Hikes

A window sticker advertising Visa and MasterCard credit cards hangs in a window in San Francisco, Calif., on Feb. 25, 2008. (Justin Sullivan/Getty Images)

Interest rates on credit cards have hit a record high as the Federal Reserve shows no signs of pivoting away from its monetary tightening policy.

The average credit card annual percentage rate (APR) has hit 19.04 percent, Ted Rossman, a senior industry analyst at Bankrate, said to The Epoch Times. This is a new record high, according to the financial website’s database going back to 1985. “The previous record was 19.00 percent in July of 1991. We started this year at 16.30 percent, so the national average has increased by 274 basis points so far in 2022,” Rossman said.

“Previously, the largest increase within a single year was 262 basis points in 2010, when the CARD Act took effect and led to huge changes in how credit card rates were set.” (The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was passed into law in order to protect consumers against unfair practices held by credit card issuers.)

So, for example, a $5,000 credit card debt at 16.3 percent interest would have taken 185 months to pay off if the person only makes minimum payments, according to an analysis by CNN. The total interest would have come to $5,517. But with the rate at 19.04 percent, the same debt will now take 191 months to pay off, with the borrower coughing up $6,545 in interest.

While speaking to the media outlet, Rossman recommended individuals struggling with their credit card debts to either transfer their balance to a zero-percent balance transfer card or to take a new lower-rate personal loan.

In January, the Federal Reserve’s benchmark interest rate was at 0.8 percent. By early November, this was pushed up to a range of 3.75–4.00 percent through multiple rate hikes.

Fed Chair Jerome Powell also dashed hopes of the central bank reversing its policy anytime soon, saying that such expectations were “very premature” and that policymakers have “still some ways to go” when it comes to raising interest rates.

Rising Debt

A new report by TransUnion found that credit card balances for the third quarter rose by 19 percent year over year, to an all-time high of $866 billion. The average credit card debt per borrower stood at $5,474, up 12 percent from the year-ago period.

The growth in credit card debt was observed to have been significantly driven by Gen Z and millennial borrowers, with their balances rising by 72 percent and 32 percent, respectively.

Paul Siegfried, a senior vice president and credit card business leader at TransUnion, cited the high inflation environment as the reason why consumers are “increasingly” turning to credit card debt.

“As expected, increased lending to higher risk tiers drove increased overall delinquency rates, with serious delinquencies now exceeding pre-pandemic levels,” noted Liz Pagel, the senior vice president of consumer lending at TransUnion.

According to a study by Equifax published on Nov. 1, the number of new credit cards issued by banks recently hit the highest level since 2011. The total limits on these cards have also grown and are above the pre-pandemic levels.