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Understanding The High Interest Rates On Credit Card Debt


It is not just your imagination that your credit card bills are the highest they have been in many years.  Part of the problem is the persistently high prices.  Rent, fuel, and groceries are so expensive that you find yourself using your credit card for everyday expenses, even if, before the pandemic, you only used it strategically, for purchases that yield credit card rewards.  Your credit card bills are probably also disturbingly expensive if you do everything possible, to avoid charging purchases on your credit card, such as using buy now pay later (BNPL).  Another reason for the expensive credit card bills these days is the high interest rates.  Of course, talking about “the interest rate” in general terms is something of an oversimplification.  Several factors influence the amount of interest you pay on a credit card.  If you are struggling to keep up with the payments on your credit card, contact a Boca Raton debt lawyer.

The Federal Funds Interest Rate, the Prime Rate, and Your Credit Card Bills

Inflation caused prices to skyrocket as the COVID-19 pandemic started to wane, and in March 2022, the federal government raised the interest rate in an effort to curb the rise in consumer prices.  Since then, it has raised the interest rate ten times, but it has promised that the most recent rate increase will be the last one, at least for the duration of 2023.  Exactly what is this interest rate that the government keeps raising?  If the interest rate used to be zero, then why have you been paying interest your whole adult life?

The “interest rate” in this context refers to the federal funds interest rate.  It is the rate that banks charge each other when they make loans to other banks.  Lenders add more interest to that amount when they lend to consumers.  The amount of interest that consumers pay is called the prime rate.  The prime rate is usually about three percent higher than the federal funds interest rate.  For example, as of May 2023, the federal funds interest rate is 5.25 percent, and the prime rate is three percent higher, at 8.25 percent.

What You Can Do to Lower Your Credit Card Interest Rate

The annual percentage rate (APR) charged by credit cards tends to be much higher than the prime rate.  As of May 2023, the average APR for new credit card accounts is 22 percent, and for existing accounts it is 20 percent.  It is worthwhile to call your credit card company and see if they will agree to reduce your APR, at least for one year.  Especially if you have had the account for a long time, they will usually agree.  They will make more money if you pay a more affordable rate than if you miss payments because you can’t afford them.

Work With a Debt Lawyer About Reducing Your Credit Card Debt

A South Florida debt lawyer can help you negotiate with creditors to reduce your consumer debt.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.



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