With only one Federal rate cut expected for the year, knowing how to get lower interest rates on your credit card can be a great way to handle your finances!
The Federal Reserve recently decided to maintain interest rates and indicated that only one rate cut is expected by the end of the year. So, anyone carrying credit card debt will not see a significant reduction in their high-interest charges anytime soon. Fortunately, there are strategies available, advised Matt Schulz, chief credit analyst at LendingTree.
“Consumers should not expect relief soon, so it’s essential to take action to lower credit card interest rates”, Schulz addeed.
Most credit cards have variable rates due to the fact that these rates are directly influenced by the Fed’s rates. Due to the recent hikes, the average credit card rate has reached 21%, which is nearly a 5% increased compared to 16.34% in March 2022, almost a record high, according to Bankrate.
“As long as interest rates remain relatively high, it’s important that consumers continue to use credit smartly, especially when it comes to higher interest products such as credit cards. It’s best to only use these cards to the extent there is confidence they can be paid off relatively soon, as interest can pile on quickly, particularly at the higher rates of today ”, said Michele Raneri, vice president of U.S. research and consulting at TransUnion, on interview with CNBC.
Lowering Your Credit Card APR
Although APRs will decrease when the Fed cuts rates, they will still remain relatively high. The Fed’s decision of only one rate cut in 2024 suggests that APRs won’t drop significantly, Schulz explained. Instead of waiting for a small reduction, Schulz recommends that borrowers take proactive steps: call their card issuer to negotiate a lower rate, get a zero-interest balance transfer credit card, or take a personal loan to pay off high-interest debt.
“Those anticipating a dip in new credit card APRs in the near future should probably adjust their expectations”, Schulz said.
There are still cards offering 15 to 21 months of no interest on balance transfers, according to Ted Rossman, senior industry analyst at Bankrate.“The fact that zero-percent balance transfer cards remain widely available, is, on its face, surprising”, said Rossman, given the inflation and interest rate hikes since the pandemic.
“It’s actually a very profitable time for credit card issuers because rates are up and more people are carrying more debt for longer periods of time. But most of those people are paying that debt back. If we were to see the job market worsen or delinquencies to go up even more, that’s when I think issuers get nervous. But right now, it’s kind of a Goldilocks environment for credit card issuers”, Rossman said.
This makes it an excellent time for consumers to utilize the options available from credit card issuers. “Balance transfer cards are still your best weapon in the battle against credit card debt,” Schulz said. A balance transfer credit card allows you to move debt from one or more cards to a new card with a lower interest rate.
Another Alternative
“Consumers should consider exploring lower interest products to help consolidate their higher interest debt and lower their monthly payments”, suggested TransUnion’s Raneri. For example, the average interest rate on a personal loan is just above 12%, according to Bankrate.
“If you don’t have good enough credit to get a zero-percent balance transfer card, a personal loan can be a good alternative”, Schulz said.