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CNBC
11 hours ago
- Business
- CNBC
The Fed held interest rates steady, but some credit card APRs keep going up. Here's why
Even with the Federal Reserve on the sidelines, credit card rates are edging higher. In June, credit card interest rates rose for the third straight month, hitting the highest level since December, according to a recent report by LendingTree. Now, the average annual percentage rate is just over 20%, according to Bankrate. For new cards, the average APR is up to 24.3%, according to LendingTree. "These are crippling rates that are compounding your debt at such a fast clip," said certified financial planner Clifford Cornell, an associate financial advisor at Bone Fide Wealth in New York City. Here's a look at other stories affecting the financial advisor business. Credit card rates stayed stable for years after the introduction of the Credit CARD Act, which passed in 2009, but shot up after the Fed started raising rates in 2015. In the decade since, APRs roughly doubled from 12% to where they stand today. Most credit cards have a variable rate so there's a direct connection to the Fed's benchmark. It follows that credit card rates spiked again along with the central bank's string of 11 rate hikes starting in March 2022. Although the Fed cut its key borrowing rate benchmark three times in 2024 and has held its benchmark steady since December, banks continued to raise credit card interest rates to record levels — and some issuers said they'll keep those higher rates in place. "This unfortunate trend could continue in coming months," said Matt Schulz, LendingTree's chief credit analyst. Card issuers are mitigating their exposure against borrowers who may fall behind on payments or default, according to Schulz. "This is a sign of banks trying to protest themselves from the risk that is out there in these uncertain times," he said. But it's also a two-way street. "When there is uncertainty in the market, this often results in consumers seeking new credit to ensure they are prepared for any future financial hurdles," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. That also has the effect of driving issuers to increase APRs. "If more balances in the hands of riskier borrowers, those rates will trend higher," Wise said. Only consumers who carry a balance from month to month feel the pain of high APRs. And higher APRs only kick in for new loans, not old debts, as in the case of new applicants for credit cards. But for those currently struggling with sky-high interest charges, even an eventual Fed rate cut may not provide much relief. "The reality is you could drop the fed funds rate by two full basis points and all you are doing is lowering your interest rate from 22% to 20%," Wise said — "that's not a material difference." Rather than wait for a rate cut that may be months away, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a lower-rate personal loan, Schulz advised. "The truth is that people have way more power over the rates they pay than they think they do, especially if they have good credit," Schulz said. The better your credit, the lower the rate you may get offered for a new card account. Cardholders who pay their balances in full and on time and keep their utilization rate — or the ratio of debt to total credit — below 30% of their available credit, can also benefit from credit card rewards and a higher credit score, experts say. That paves the way to lower-cost loans and better terms going forward.
Yahoo
31-03-2025
- Business
- Yahoo
Why you should pay your credit card every two weeks
Paying your credit card twice a month is good because it allows you to check in with your spending and get ahead of your bills. If you're carrying credit card debt, making a credit card payment every other week could also save you money on interest. Even if you aren't carrying credit card debt, making a credit card payment every other week could reduce your credit utilization ratio and improve your credit score. I've gotten into the habit of paying my credit cards off every two weeks, and I recommend this strategy to everyone. While you should always strive to pay your bills in full to avoid interest, this approach is even more impactful for cardholders who carry balances. If you carry credit card debt from month to month, you don't have a grace period. In other words, interest is accumulating every single day. There are slightly different ways that card issuers calculate this — it's often a daily periodic interest rate applied to your daily balance — but the main point is that if you have credit card debt, interest is constantly accruing. That's why paying sooner is often better than waiting until later. If you pay your entire credit card statement balance, then the next month you should benefit from a grace period. The Credit CARD Act mandates that if issuers have grace periods, and they typically do, then they must last at least 21 days. For example, one of my credit cards emailed me a statement on Dec. 8. Since I paid the entire balance the previous month, I won't be charged any interest if I pay in full by Jan. 5. Cardholders who pay in full can ride the float even longer, depending on when they made their purchases. Expanding on my previous example, if I made a purchase on Dec. 9, that bill wouldn't even arrive until Jan. 8, and I'd be interest-free until Feb. 5 (again, assuming I paid in full the previous month). Still, I like paying off my credit cards much more often than that. I've turned my credit card payments into a payday ritual — every other Friday. One tangible benefit is a lower credit utilization ratio, which helps my credit score. A credit utilization ratio is how much credit you're using divided by your total credit limit. It's calculated per card and across all your cards combined. A lot of people don't realize they might have a high credit utilization ratio even if they pay their entire statement balances each month. Credit utilization is usually reported on your statement date, so if you made $4,000 in charges against a $5,000 limit, you have a very high 80 percent utilization ratio — even if you pay the whole amount before interest is charged. It's usually best to keep that ratio under 30 percent, and even lower is better. Many people with excellent credit scores keep their utilization under 10 percent. Making an extra mid-month payment or two is a helpful way to accomplish that. Learn more: Determine your credit utilization with Bankrate's Credit Utilization Calculator If your cards are 'out of sight, out of mind,' you might have a nasty surprise waiting for you when the statement arrives. That's especially true during the end of the year with holiday shopping, travel, parties and so forth. Even if you don't like the extra midmonth payment idea, at the very least, you should be logging in to your credit card issuers' apps and websites every week or so to keep tabs on your spending. Look for fraudulent transactions while you're at it. Credit and debit cards can help you map out your spending habits because they provide a digital or paper trail. When we spend cash, sometimes it's hard to remember where all that money went. And once you know where you've been, you'll be better equipped to set your future course. You might be about to fall into credit card debt if you're able to pay your monthly statement balances in full, but you're not able to afford the extra charges that you made between the statement close date and your payment date. That's the difference between the 'statement balance' and the 'current balance' you see when you pay your credit card bills online. If you can pay the statement balance but not the current balance, you're living close to the edge. You're essentially depending on your next paycheck to fund the purchases you've already made. An every-other-week payment routine gets you out of this rut. You get ahead of your bills rather than playing catch-up all the time. Plus, becoming more conscious about your money can help you avoid overspending and lets you instead focus on what's most important in your life. If you've already found yourself in debt and don't know how to stop the snowball effect, consider these options to start: Apply for a 0 percent intro APR balance transfer card — these offers last as long as 21 months and can help stop the interest build-up Take on a side hustle Sell unneeded possessions Do whatever you can to cut your expenses, or funnel as much extra money toward your credit card debt as you can, as often as you can. Know that credit card debt is easy to get into and hard to get out of. Interest rates are very high, with today's average credit card rate sitting at just over 20 percent. If you're in debt, know that you're not alone. Forty-eight percent of cardholders are carrying a balance from month to month, and about 53 percent have been in debt for at least a year, according to Bankrate's 2024 Credit Card Debt Survey. Learn more: Browse Bankrate's resources on managing debt While you only need to make one monthly credit card payment to maintain a good credit score, paying your credit card twice a month can have many additional benefits. If you are carrying a balance, then making credit card payments every other week can help reduce your interest charges. Plus, making multiple credit card payments can help lower your credit utilization ratio and improve your credit score. You can also use your midmonth credit card payment to check in on your spending history and get ahead of your upcoming bills. Is it bad to pay your credit card twice a month? It's actually a good idea to pay your credit card twice a month. By making multiple monthly payments, you can make progress on your debt, reduce the amount of interest you owe and boost your credit score. Should I pay my credit card in full? It's always a good idea to pay off your credit card in full, but it may not be realistic in some situations. If you can't pay off your credit card in full this month, try making multiple credit card payments over the next month. Not only will you save money on interest, but you may also prevent your current balance from becoming long-term credit card debt. Should I pay my credit card every other week? Some people choose to pay their credit card every other week, often timing it to their bimonthly paycheck. This allows you to put money towards your debt before you have the chance to spend it on anything else, and could help you get out of debt more quickly. Sign in to access your portfolio
