With credit card interest at all-time highs, here’s what you need to know

Monday, March 11, 2024

Do you know how much interest you are paying on your credit cards? If you don’t, you aren’t alone.

About half of all credit card users are not sure what the interest rates are on their credit cards, according to Shannon Doyle, financial educator with LSS Financial Counseling, shared that the Annual Percentage Rate on your credit card is an important number to know because it can significantly impact your financial wellbeing, especially over time. 

Currently, the average interest on a bank credit card rate is 21.5 percent, according to the Federal Reserve — the highest interest rate ever recorded by this organization. 

That means, if you are carrying a $6,000 balance on a credit card from month to month, you are paying about $107 in interest each month, which totals about $1,284 per year, depending how your credit card company handles compound interest. (You can calculate the interest you are paying by using’s credit card calculator.)

“That’s a significant chunk out of your budget each year that you could use to pay for groceries, car payments, or a fun trip to a warm destination,” Doyle said. 

Moreover, if you only pay the minimum monthly payment on your balance — say $120 and never charge another item to the card, it will take you about 11 years to pay off that card. In the meantime, you’ll be paying the credit card company nearly $10,000 for the privilege of borrowing that $6,000. 

Doyle shares several strategies to avoid the high cost of interest on credit cards:

1) Pay bills in full each month, and on time. Avoid high interest rates altogether by paying your balance in full every month. Your FICO score — or the most common way to determine your credit score — also considers your payment history and late payments not only lower your credit score but can stay on your record for more than seven years. So, even if you’re only paying the minimum, make sure payments are timely.

2) Implement the power payment method. If it’s not possible to pay your monthly credit card balance in full, pick your priority debt to pay off. This could either be the card with the lowest balance (to have fewer payments), or the card with the highest interest (to save money on interest.) Pay as much extra on the priority debt as you can, while paying the minimum payments on any other debt, until the priority debt is paid off, then add that total payment to the next card in line.

3) Consider a Debt Management Plan. By creating a DMP, you can typically lower your monthly payment and reduce interest rates on your credit cards so that you can pay off your debt more quickly. Together, these two strategies will save you thousands of dollars in the long run. 

LSS Financial Counseling is a nonprofit organization that offers Debt Management Plans that require a small, one-time set up fee and a small monthly maintenance fee. They also offer free budget and debt counseling that can help you outline your income and monthly expenses and create a budget that can work for you.

“Anytime is a good time to get your personal finances in order,” Doyle said. “Often, creating a budget is the first step that can help you avoid lots of financial headaches down the road.”