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How to Beat Surging Credit Card Interest Rates

Some cards charging as much as 29.99 percent

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If you haven’t noticed that interest rates are rising, your credit card company certainly has. As of Oct. 5, the average credit card was charging 18.45 percent interest, the highest since 1992, according to

And that’s just with the average credit card. Rates for many cards, particularly store credit cards, run much higher. “We found, among the 100 largest retailers, 18 store cards at 29.99 percent,” says Ted Rossman, senior industry analyst at

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Even higher rates ahead

The recent rise in interest rates is one cause of today’s high credit-card rates. In an effort to fight soaring inflation, the Federal Reserve Board has raised its short-term federal funds rate five times this year, from near zero to a range of 3 percent to 3.25 percent. The fed funds rate, in turn, influences commercial banks’ prime rate, currently 6.25 percent.

Most credit cards base their interest rate on the prime rate plus an additional amount, which depends on your credit history. That additional charge has been creeping upward as well. Credit card companies have “padded their margin a bit in the past several years,” Rossman says.

The Fed last raised interest rates on Sept. 22. Credit card issuers are required to give cardholders 45 days’ notice of a change in rates, so you might see an increase in your credit card rate soon. The Fed will meet again in November and December, and it’s widely expected that the central bank will raise interest rates by 1.25 percentage points by the end of the year.

How to get a lower rate

How can you reduce the sting of high credit-card rates? The most obvious answer is to pay for your purchases each month before the bank starts charging interest. 

Be sure, however, to read the fine print about when interest is charged. You typically have a period of time, called a grace period, when you don't owe interest on purchases. But credit card companies will typically charge interest on cash advances the day you take them, and the same holds true for any convenience checks from the card issuer.

Nevertheless, even the best savers sometimes have to put a big expense on plastic. And some people simply get caught up in holiday cheer and overspend. If that’s you, then here are a few strategies to avoid the highest credit-card rates in decades.

Switch to a zero percent credit card offer. “Even if you have a lesser credit score, zero percent balance transfer offers are still abundant, some with up to 21 months with no interest,” Rossman says.

Why do banks make interest-free offers for balance transfers? To bring in new customers — and because many people don’t pay off their balances within the grace period, he adds. Nevertheless, the more you can pay down during the grace period, the less you’ll have to pay when interest charges resume.

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Consider a fixed-term personal loan. You don’t have to go to a loan shark to get a fixed-rate personal loan. Some large lenders — such as American Express, Discover and SoFi — are offering fixed-rate personal loans that may save you money in interest. “A zero percent transfer is better, but you could save some money with a 6 percent to 7 percent fixed-rate loan,” Rossman says.

Improve your credit score. If the Fed raises interest rates again, your credit card rate is likely to go up again too. But it will go up less if you can nudge your credit score up to 740 to 799, which is considered “very good.” 

Try setting up automatic bill payment so you don’t pay your bills late, and check your credit report to make sure it doesn’t contain any errors. And pay down your card as aggressively as possible. All things being equal, paying down a credit card that charges 18 percent interest is about the same as earning 18 percent on an investment.

Ask for a lower rate. If you’ve been diligent about paying your credit card, you may be able to get a lower rate simply by asking. In all likelihood, your new rate won’t be that much lower than your old one, but it never hurts to ask. If the answer is “no,” then shop for a new card, preferably one with a zero percent introductory offer.

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