Why Are Credit Card Rates Going Up?

Credit card Q&A: “Why are credit card rates going up?”

Thanks to recent legislation, credit card issuers have had to make adjustments to protect profit margins.

It started with the Credit Cardholders’ Bill of Rights, which stamped out a number of lucrative practices, including arbitrary interest rate increases, double-cycle billing, and negative payment hierarchy.

Shortly after came the so-called Credit Card Act II, which banned inactivity fees and barred credit card issuers from charging a penalty fee that exceeded the dollar amount of the associated misstep.

These changes, and a number of others, forced credit card companies to bump interest rates higher and do away with fixed rate credit cards.

Nowadays, most credit cards are variable, meaning the rate can change when the prime rate is changed, or for other reasons.

Additionally, credit card rates tend to be higher than they were a few years ago, meaning card holders are paying more in credit card finance charges if they carry a balance.

So what do you do to combat the higher credit card rates?

Well, if you must carry a credit card balance, consider executing a balance transfer, which allows you to move your high-APR debt to a 0% APR credit card.

Doing so could save you thousands of dollars that you’d be paying in the way of interest to the credit card issuers.

Most credit card interest rates start in the teens these days, and that’s for supposed low interest credit cards.

Standard credit card APR can be in the mid-teens to the 20% range or higher, meaning carrying a balance can be very expensive.

Balance transfer example:

Current credit card debt: $3,000 @ 19.99% APR
Balance transfer offer: 0% APR for 18 months
Balance transfer fee: 3%

If you were to move the debt via a balance transfer, you’d incur a $90 balance transfer fee, but you wouldn’t pay any interest for the first 18 months from the transfer date.

Put another way, you’d avoid roughly $50 in monthly finance charges (using simple math) for those 18 months, assuming your balance was steady.

That’s a huge savings, and illustrates why carrying a credit card balance doesn’t make a lot of sense. Fortunately there are options.

Related balance transfer offer: 0% APR for 18 months from Discover