Presently, the gap between the prime rate and the average credit card interest rate is the highest it’s been in 22 years. Here’s what that means, and why it might be the new status quo: The prime rate is the interest rate charged by banks to their most reliable customers (usually prominent and stable businesses). That rate has been holding steady at 3.25% since December 2008, but the average credit card interest rate is now almost 15%. That’s a really big gap, and it might be here to stay.
The CARD Act of 2009 has changed the way that credit card companies approach consumers, and it’s limited how much money they can make from those consumers. As a result, they’re trying new tactics to make money (they’re not nonprofits, after all). One major way for them to continue to make money is to raise interest rates.
What This Means If You Don’t Have Credit Card Debt
Nothing, if you stay debt-free. This just ups the ante and serves as incentive not to toy with delaying on bills—because you’ll have to pay more than ever before in recent memory.
What This Means If You Do Have Credit Card Debt
We know that getting out of debt is easier said than done, and that times are decidedly tough. Know that your previous debt will not leap up to these higher interest rates, meaning that you can continue to repay it at your previous rates. We never want you to take on new credit card debt, but we know that that can be tough, too. The most important thing is to go in with open eyes: These interest rates are steep! Use this as an excuse to avoid additional debt. Even if it means taking on extra shifts at work or cutting back on your spending, we want to encourage you to do everything in your power. If you’re looking for extra ways to cut costs in your everyday life, sign up for our Cut Your Costs Bootcamp. If you’re looking for a community or additional encouragement, we’re here for you.
Keep An Eye Out For New Tricks
As the credit card companies struggle for new ways to keep up their profits, it’s our job to be on our guard against new rip-offs. We’ve already seen a few, like offers for professional cards. Stay on alert for additional interest rate increase and annual fees. Also, don’t lose sight of the structure of your rewards cards—some pundits speculate that, to save money, many cards may start slashing the value of their rewards.