4 Ways to Fight Rising Credit Card Interest Rates

If you haven’t noticed interest rates rising, your credit card company probably has. As of Oct. 5, the average credit card was charging 18.45% interest, the highest since 1992, according to Bankrate.com.

And that’s just with the average credit card. The rates for many cards, especially store credit cards, are much higher. “We found, among the top 100 retailers, 18 store cards at 29.99%,” says Ted Rossman, senior industry analyst at CreditCards.com.

Even higher rates to come

The recent rise in interest rates is one of the causes of today’s high credit card rates. In an effort to combat runaway inflation, the Federal Reserve has raised its short-term federal funds rate five times this year, from near zero to a range of 3% to 3.25%. The federal funds rate, in turn, influences the commercial bank prime rate, currently 6.25%.

Most credit cards base their interest rate on the prime rate plus an additional amount, which depends on your credit history. This additional load has also increased. Credit card companies have “increased their margin quite a bit over the past few years,” Rossman said.

The Fed last raised interest rates in September. 22. Credit card issuers are required to give cardholders 45 days notice of rate changes, so you may soon see your credit card rate increase. The Fed will meet again in November and December, and the central bank is widely expected to raise interest rates by 1.25 percentage points by the end of the year.

How to get a lower rate

How can you reduce the sting of high credit card rates? The most obvious answer is to pay for your purchases each month before the bank starts charging interest.

Be sure, however, to read the fine print about when interest is charged. You usually have a period of time, called a grace period, during which you don’t owe interest on purchases. But credit card companies typically charge interest on cash advances the day you take them, and the same goes for any convenience checks from the card issuer.

Nevertheless, even the best savers sometimes have to put a big expense in plastic. And some people just get carried away with the holiday cheer and spend too much. If this is your case, here are some strategies for avoiding the highest credit card rates in decades.

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