Average annual percentage rates (APR) for new credit cards are at an all-time high. The average bank card borrowing rate in America in June rose to around 20%revealing a sharp increase of around 6% compared to the average credit card rate before the pandemic of 14.87% in 2019.
“Credit card interest rates are basically the highest they’ve ever been. I’ve been monitoring credit card rates on a monthly basis for over a decade now. And that’s the highest they’ve been since I tracked them,” Matt Schulz, LendingTree (TREE) chief credit analyst, told Yahoo Finance Live (video above).
Schulz predicts that consumer borrowing costs could continue to rise significantly. “The disturbing truth is that we are nowhere near the top,” he said.
The increases are the result of 3 interest rate hikes made by the Federal Reserve in recent months to combat soaring inflation. In June, the Fed raised rates by 75 basis points in mid-June, an aggressive move that took the federal funds rate to 1.75% from zero in March 2020.
US credit card balances rose to $840 billion in the first three months of 2022, according to data released by the Federal Reserve Bank of New York on May 10. This increase is consistent with the steady upward trend in national credit card debt since 1999. Schulz stressed that this should not change as debt growth is expected to continue even as silver becomes more expensive.
“What we’re seeing right now is actually an increase in card debt,” he said. “The only time we’ve seen any real significant decreases in credit card debt since the Fed started tracking credit card debt in the 1960s is during times of great economic crisis, such as the Great Recession, like the very beginning of the pandemic.”
Schulz offered some advice for consumers feeling the pinch, suggesting borrowers negotiate lower interest rates with their lenders and take advantage of balance transfers.
In an April Lending Tree poll, about 70% of people who asked for a lower interest rate on their credit cards in the past year were successful, Schulz said. “And that indicates that it’s not just people with 800 credit scores who get what they want,” he added.
Although the chances of successfully requesting a lower APR from lenders have soaked in recent months compared to previous years, it is worth it. “The average reduction people reported was seven percentage points. It’s a really significant reduction. So, it is definitely worth taking your time.
Rebecca Chen is a writer and journalist at Yahoo Finance. Follow her on Twitter @RebeccaChenP