Credit card interest rates remain above 20%, making revolving card debt one of the most expensive forms of borrowing for American households. The average rate is 22.2% on new credit-card offers and 20.94% across existing accounts, according to WalletHub’s latest credit-card data.
For someone carrying a balance, those percentages can translate into serious money. A $5,000 balance at 20.94% represents roughly $1,047 in interest over a year using a simple annual estimate if the balance remained unchanged. At $10,000, that figure rises to about $2,094. Actual credit-card interest is generally calculated using a daily periodic rate, and payments and new purchases change the balance throughout the month, but the examples show just how expensive revolving debt can become.
The problem becomes more serious when cardholders make only minimum payments. Paying the minimum can keep an account current, but it may reduce the principal slowly while interest continues accumulating. That can stretch repayment over years and substantially increase the total cost of purchases that were originally much less expensive.
How to Pay Less Interest on Credit Card Debt
Consumers carrying balances can start by checking the APR on each card rather than focusing only on how much they owe. Paying more than the minimum, directing extra money toward high-interest balances and limiting new charges can reduce interest costs. A lower-rate personal loan or 0% balance-transfer offer may also help in some situations, although borrowers should consider transfer fees, promotional deadlines and the regular APR that takes effect when an introductory period ends.
High credit-card balances can affect more than monthly cash flow. They can also increase credit utilization — the percentage of available revolving credit being used — which is an important factor in credit scoring. Paying those balances down can therefore provide two potential benefits: reducing expensive interest charges while lowering credit utilization, which may help strengthen a consumer’s overall credit profile.
