Credit card rates hit record high as Fed battles inflation

() — There is never a good time to go into credit card debt. But right now it’s possibly the worst.

The Federal Reserve’s fight against inflation has pushed up the average APR (annual percentage rate) on credit cards to 19.04% as of November 9, according to Bankrate.com.

This is the highest rate since the Bankrate.com database began in 1985, surpassing the previous record of 19% set in July 1991.

This milestone is the latest demonstration of how the Federal Reserve’s historic anti-inflation campaign is driving up borrowing costs across the board. Mortgage interest rates have more than doubled in the past year, hitting 20-year highs, forcing countless potential buyers out of the real estate market.

The national average APR for credit cards has risen 2.74 percentage points so far this year, the largest increase in a single year, according to Bankrate.com.

The rise occurs after the credit card balances rose sharply earlier in the year amid high inflation, according to a study by the Federal Reserve. Industry experts predict that shoppers will rely heavily on credit cards to pay for increasingly expensive gifts this holiday shopping season.

“It’s hard to build wealth when you pay the credit card company so much every month,” said Ted Rossman, principal industry analyst at Bankrate.

Credit card debt can be tough, even at the lowest rates.

According to Bankrate.com, at the national median rate of 16.3% at the beginning of the year, it would have taken 185 months of minimum payments to pay off $5,000 of credit card debt. And that would have cost $5,517 in interest.

At the current rate, it will take 191 months and cost $6,546 in interest to pay off the same $5,000 balance.

The good news is that despite high inflation, Americans are largely paying off their credit card bills. Delinquencies and defaults are very low, in part due to the savings that many people accumulated during the covid-19 pandemic.

The bad news is that this could change quickly if forecasts of increased layoffs come to pass.

In the past few days alone, Facebook owner Meta has revealed it will cut more than 11,000 jobs, Lyft has said it will cut 700 jobs, and Redfin announced nearly 900 layoffs. Others, like Amazon, have said they will freeze some hiring.

“There is only one possible path for the unemployment rate: up,” Rossman said.

He recommends that Americans struggling with credit card debt consider taking out a low-interest personal loan or transferring their balance to a 0% balance transfer card.

Competition has intensified in this area, and some 0% balance transfer cards allow consumers to avoid interest for up to 21 months, giving them time to pay off their debt, Rossman said.