Americans are doing a historically poor job of saving money and are racking up credit card bills — just as the interest they’re paying on those cards is soaring.
The onset of COVID-19 shocked many households into better financial habits. Americans saved 33.8 cents per dollar in April 2020. That number took a nosedive to just 3.1 cents on the dollar as of September 2022.
In the meantime, the average credit card interest rate is 18.9% APR. Retail credit cards hit an all-time high of 26.7%. And you may want to sit down for this one: The average store-only credit card now charges 28.2% interest.
Why is this happening? That’s what a listener of the Clark Howard Podcast recently asked.
Why Are Credit Card Interest Rates Skyrocketing?
The spike in credit card interest rates recently caught the interest of at least one member of Clark’s audience.
Phil in New Hampshire asked: “Why are credit card companies charging such high interest rates? My APR rate is over 20%.”
Credit card rates are, of course, variable. And much like mortgage rates and savings account interest rates, which are also soaring, credit card rates increase when the Federal Reserve raises the interest rates.
“[Those] that are running balances, your back’s already against the wall. And credit card interest rates have just hit a record high level. People who are running balances are their prisoners, and they’re going to just eat you up,” Clark says.
“Rates over 20%, that was unusual a year ago. Not at all now. The whole key, Phil, is when you’re in a position to never pay a credit card company another penny of interest again, your life going forward is going to feel so much better, and you’ll have so much more control.”
No one knows when the Fed will stop raising interest rates. It seems determined to do so until inflation subsides. But it has hiked rates at six consecutive meetings, raising rates by 3.75% this year, the most in a single year since the 1980s.
So expect rates to remain elevated. It’s possible they’ll continue to rise in the near term.
What Can You Do To Pay Off Your Credit Card Faster?
If you’re currently running a balance on a credit card, you’re not alone. However, credit card debt tends to stick around. And the higher the interest, the longer it will last, as more of your payments go toward the interest.
According to a recent poll from CreditCards.com, 60% of people who have credit card debt in 2022 have owed their creditors for at least 12 months. That’s a 10-point increase from the data collected on the same question during a 2021 poll.
Clark.com credit card expert Nick Cole recently wrote a piece highlighting how big of a problem credit card debt is right now and what to do about it. Clark also offered a simple trick to paying your credit card off faster.
No matter what your financial goals are, nothing will serve as a heavy, stubborn anchor like high-interest credit card debt.
Clark isn’t the most militant about never carrying debt. But he’s always taken a harder stance against credit card debt specifically.
“If you aren’t carrying a balance now, great,” he says. “Just keep in mind how much credit card companies are going to charge you if you do. Got a balance at the moment? Make it a priority to ditch it if you can.”
Want to join a group of Clark.com readers who encourage and help each other pay down debts? Check out our “Ditch Your Debt” Facebook group. You can also contact our Consumer Action Center at 636-492-5275.