If you feel like you're paying higher credit card APRs than you were just a couple of years ago, it's not just your imagination. According to new data, the average credit card interest rate has climbed to an all-time high recently. Average rates were near 11% as recently as a few years ago, but now that average is hovering just below 15% -- a serious financial burden for anyone who has to carry a balance.
As this article points out, APRs hit a record high of 14.78% in November, and they've only inched down incrementally since then (the most recent data shows a 14.72% average).We've recently discussed the increase in both the number and amounts of credit card fees, and this escalation of interest rates is part of the same phenomenon. "What I'm encouraged by is that, generally, credit card debt is declining so the banks are compensating by raising interest rates because people aren't holding as much debt," says Ed Mierzwinski, consumer program director at consumer advocacy organization U.S. PIRG.
It's been well documented that many issuers raised APRs in advance of the implementation of the CARD Act, since that law prohibits issuers from hiking your rates just because they feel like it. As a result, banks are starting out from a higher baseline when it comes to your rate, since they're limited in the situations for which they can raise that percentage (mainly late payments and other penalty-related reasons). Fortunately, issuers have also been aggressive about marketing low promotional rates, so if you know you'll have to revolve a balance in the near future, you can shop around for a low rate that will last for several months.
While some legislators have proposed caps on the rates credit card companies can charge customers, the fact that no such restriction made it into the original CARD Act makes it unlikely that one will be implemented now.
PIRG's Mierzwinski says the best solution is to keep chipping away at our collective debt. After all, if you don't revolve a balance, your APR shouldn't really matter. He adds that a big motivation for people seems to be the new CARD Act-mandated disclosure that spells out exactly how long you'll be stuck paying off your balance -- and how much of that will be interest -- if you only make minimum payments each month. If you revolved a balance and have never taken a look at that information on your statement, check it out; it could be eye-opening.