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Many Americans are in the dark about one important aspect of their credit cards.
Of those who carry a balance, 40% don’t know the interest rate they’re being charged on their primary card, a new survey from Bankrate found.
That could wind up costing them a lot of money.
“As much as we have heard about record-low rates on other products, credit card rates are already high and are probably heading higher,” said Ted Rossman, senior industry analyst at Bankrate and CreditCards.com.
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The average credit card rate is 16.3%, according to Bankrate. With the Federal Reserve planning to raise interest rates this year, credit card rates will be more like an average 17% by the end of the year, Rossman predicts.
Yet those who carry balances tend to have even higher rates, perhaps due to lower credit scores, he said. Accounts assessed interest had an average 17.13% interest rate in the third quarter of 2021, according to the Fed.
At the higher rate, if you made minimum payments toward the average credit card balance — which is $5,525, according to Experian — it would take you 16 years to pay off the debt. You would owe more than $6,500 in interest, Bankrate calculated.
What to do
To pay down your debt as soon as possible, you have a number of options.
The best avenue is to transfer it to a zero-interest-rate credit card, which can defer interest for up to 21 months, Rossman suggests.
“They were very hard to get in 2020,” he said. “Lenders were very worried about risk.
“Now there is a lot of competition again,” Rossman added. “You can use that to your advantage.”
Also consider raising your income to pay down debt, like taking on side hustle or try to negotiate a raise at work.
If you can’t get a zero-interest-rate card, consider a personal loan as a form of debt consolidation, Rossman suggests. While it won’t have a zero rate, if you have good credit it can possibly be 5% to 7%. The term can be up to five years.
For those who need help, consider nonprofit credit counseling, which can help with debt management plans. You don’t necessarily need good credit to qualify, Rossman said.
One thing you shouldn’t do is focus on credit cards that offer rewards.
While they are great if you pay your bill in full every month, your first priority should be paying down debt, Rossman said.
“Don’t chase cash back if you are paying 15% to 20% in interest,” he said. “Save the reward chasing until you are debt-free.”
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