1. Current State of Credit Card Interest Rates
As of May 2024, the average credit card interest rate was 21.51%, according to data from the Federal Reserve Bank of St. Louis. These high rates have led to rising debt burdens for cardholders.
2. Fed Rate Cuts May Be Coming
The good news? Experts predict the Federal Reserve might cut the benchmark interest rate soon, starting with a 25-basis-point cut at the next three meetings for a total reduction of 75 basis points.
3. Will Credit Card Rates Drop Immediately?
Not quite. According to credit expert John Ulzheimer, even with a Fed rate cut, credit card APRs may only decrease slightly. We may see a drop of around 0.5% to 1% initially, says Leslie H. Tayne, a financial attorney.
4. Introductory Offers Might Get Better
Cardholders looking for better rates may benefit from 0% APR offers, which are expected to remain attractive through the end of the year. As the holiday season approaches, issuers may roll out more competitive offers to entice spending.
5. Long-Term Outlook on Rate Cuts
A significant reduction in rates may not happen until the end of 2024 or early 2025. This will depend on how aggressive the Fed is with further rate cuts. For now, any rate reduction will likely be modest.
6. Higher APR Margins Are Driving Rates Up
Even if the Fed cuts rates, the Consumer Financial Protection Bureau (CFPB) indicates that almost half of the rise in credit card APRs over the last decade is due to issuers increasing their APR margins, which hit a record high of 14.3%.