Credit card interest rates predicted to fall, but debt remains high

Predictions abound for credit card interest rates in the coming months. Like many interest rates, it's likely credit card interest rates will drop if the Fed starts cutting rates.

Credit card APRs have risen steadily for the last 22 months, landing at 22.75% in November 2023, Federal Reserve data showed. Rising rates were largely attributed to the Fed’s frequent rate hikes throughout the year.

Rates aren’t expected to drop by much, especially compared to how much they’ve increased in recent years. What the Fed does with interest rates is one of the biggest determining factors.

"Ultimately, with the changes of the fed funds rate, the prime rate also changes, which then in turn increases or decreases the APR on your credit card," John Jones, investment advisor at Heritage Financial, said.

If you’re stuck with high interest credit card debt, combining that debt into a lower interest personal loan can help you become debt-free sooner. Use an online marketplace like Credible to make sure you’re getting the best rate and lender for your needs.

AMERICANS LIVING PAYCHECK TO PAYCHECK OWN 60% OF CREDIT CARD DEBT: SURVEY

Credit card debt reaches new high

While credit card interest rates may drop this year, many Americans still face growing credit card balances. The total credit card debt in the U.S. reached $1.08 trillion in 2023, a Federal Reserve Bank of New York report said. That’s an increase of 4.7% since 2022. 

Sixty-one percent of Americans are in credit card debt, according to a Clever Real Estate study. The average balance of those surveyed was $5,875. Millennials face the largest credit card debt burden, owing nearly $6,800, on average.

Some Americans spend over $1,500 each month on their credit cards. Due to this high spending, over a quarter of credit card users find it difficult to make monthly minimum payments. Fourteen percent missed a payment in 2023, Clever's study found. 

Credit card debt remains a persistent problem for Americans. Twenty-three percent of credit cardholders reported it’ll take more than five years to pay down their balances.

This debt is also holding back consumers from making other major purchases. Forty-seven percent of respondents to Clever’s survey said they couldn’t save up an emergency fund due to their debt. Twenty-two percent have put buying a home on hold because of high credit card debt levels.

Credit card debt can be difficult to get out of, but a low interest personal loan can help. Credible can help you find reputable personal loan lenders that provide timely funding.

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Buy now, pay later usage is growing

Buy now, pay later (BNPL) options are also becoming more popular among some consumers. About half of adults have used BNPL apps, Statista reports.

"It’s never been more important for people to be able to hang onto their cash, as more consumers are looking to use BNPL to pay for the necessities of life … all the way around to fun things like travel and entertainment," Jacqueline White, president of i2c, said in a PYMENTS release.

There’s a particular kind of consumer that tends to choose buy now, pay later options. A Liberty Street Economics report found that 41% of applicants for BNPL plans were recently denied other forms of credit.

Similarly, consumers with lower credit scores often use BNPL, despite being offered BNPL options less frequently at checkout. Forty-three percent of those who use BNPL plans have a credit score below 620, according to Liberty Street’s data.

When it comes to personal loan shopping, Credible can do the heavy lifting for you. With the click of a button, Credible will show you multiple lenders, rates and terms in one spot.

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