This year, interest rates on all consumer debt are rising, which is bad news for people who have credit card balances.
In an ongoing effort to combat inflation, the Federal Reserve has pushed interest rates higher and recently announced an unprecedented three consecutive 75-basis-point increases. Due to this, borrowing has become more expensive for many consumers.
Users of credit cards can typically avoid paying interest on purchases by making full monthly payments. On the other hand, LendingTree estimates that there is a balance due on about half of all cards. The cost of higher rates may be high for those borrowers.
According to the Federal Reserve, the average annual percentage rate (APR), which is a credit card's interest rate expressed as a yearly rate, increased over the previous six months from 16.17% to 16.65%, approaching the all-time record high of 17.14% in 2019.
In the meantime, credit card debt increased. According to the Center for Microeconomic Data at the Federal Reserve Bank of New York, credit card balances increased 13% in the second quarter compared to the prior year, the highest increase in more than 20 years.
According to Joelle Scally, the Center's administrator, the increase appears to have been caused by higher prices.
While household balance sheets generally seem to be in good shape, she noted that rates of delinquencies among subprime and low-income borrowers are rising and getting close to pre-pandemic levels.
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