With the average credit card interest rate currently hovering above 23%, millions of Americans are finding it harder to keep up with their monthly credit card payments. The typical cardholder has close to $8,000 in credit card debt right now and today’s high average card rate means that interest charges are accumulating quickly. As a result, many cardholders have been hoping to get some relief in the form of lower rates — especially now that the Federal Reserve has started slashing its benchmark rate. 

Unfortunately, a recent shift in the economic conditions we’re facing may complicate things. While inflation had dropped in recent months, the latest data shows that the inflation rate actually increased in October, climbing by 2.6% on an annual basis. This marks a slight increase from the rate of 2.4% in September, which is when the Federal Reserve began cutting interest rates to address weakening consumer prices and a softening labor market. That raises concerns about where the trajectory of interest rates could be headed next.

So will credit card interest rates increase now that inflation is climbing? Or will cardholders get some much-needed relief from today’s high-rate credit card environment? Below, we’ll break down what to know.

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Will credit card interest rates increase now that inflation is climbing?

There is a strong possibility that credit card interest rates could increase, and if they do, the uptick would likely be driven in part by recent inflation trends. After all, credit card interest rates have been on a gradual upward trajectory over the past several years thanks to a combination of benchmark rate increases set by the Federal Reserve and the increasing cost of lending. While the Federal Reserve does not directly set credit card interest rates, its policies do influence the rates that banks use when determining what to charge on revolving products like credit cards.

That said, credit card interest rates are generally based on a bank’s prime rate, which is the rate at which banks lend to one another overnight. When the Fed raises the federal funds rate to manage inflation, it typically causes the prime rate to go up, which in turn impacts credit card rates. Given the recent uptick in inflation, credit card rates could rise in response to any Fed decision to increase the federal funds rate to combat inflationary pressures. For borrowers, this means an even higher cost of maintaining their credit card balances.

However, credit card rates aren’t solely dependent on the Fed’s actions. Most credit cards feature variable APRs that are calculated by adding a margin to the prime rate. This margin, which can range from 10 to 20 percentage points or more, is determined by factors such as the cardholder’s creditworthiness, the card’s features and the issuer’s business strategy. As a result, even in periods of stable prime rates, credit card interest rates can fluctuate based on these additional factors.

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How to lower your credit card interest rates now

With potential rate increases on the horizon, those carrying credit card debt may want to consider their options for lowering their interest rates. For those facing high balances, several debt relief options can help reduce the overall cost of credit card debt and ease monthly payments.

One effective option for reducing credit card interest is through a balance transfer to a card offering an introductory 0% APR. Many credit card companies offer promotional periods of 12 to 21 months with no interest on transferred balances. By moving high-interest debt to a 0% APR card, borrowers can pay down their principal balance more effectively without accruing additional interest. That said, it’s important to fully understand the terms, as some balance transfer cards charge a 3% to 5% fee that could impact savings.

Another route is seeking a debt consolidation loan through a lender or debt relief agency. These loans can consolidate multiple credit card balances into a single loan with a fixed interest rate, which is often lower than typical credit card rates. As a result, the monthly payments may be lower and more predictable, allowing borrowers to make progress on paying down debt without the compounding interest typically associated with credit cards.

Debt management plans also offer a structured way for borrowers to manage and reduce their debt. With a debt management plan, a credit counselor works with creditors to negotiate lower interest rates and waive certain fees. Borrowers then make a single monthly payment to the credit counseling agency, which distributes the funds to creditors. This approach can be beneficial for individuals who feel overwhelmed by managing multiple credit card payments and are looking for a structured path to becoming debt-free.

The bottom line

In the face of inflation and the potential for rising credit card rates, it’s important to explore options that could offer financial relief and prevent interest costs from compounding further. As the economic landscape continues to shift, taking proactive steps to lower credit card interest rates and manage debt can provide valuable financial security for many households.