Just ahead of holiday shopping season, credit card interest rates hit record highs
MINNEAPOLIS — With the holidays fast approaching, the average interest rate for store credit cards has hit a new record high.
Do you know the average annual percentage rate or APR on those cards? When many WCCO asked found out that the current APR sits at 28.93%, the news was meant with a reaction of shock and awe. What's more, those rates can go even higher, says Bankrate senior industry analyst Ted Rossman.
"Some of these cards are charging 33%. I mean, it just underscores that credit cards are your highest cost debt by a wide margin," Rossman said.
Right now, 47% of consumers are now carrying a credit card balance month to month. That's up from 39% just two years ago.
"If you ever plan to carry a balance, a store card is probably not the best bet for you," explained Rossman.
He says there are two instances where a retail credit card may make sense.
"If you're loyal to the store, you can pay your bills in full and avoid interest. And every time you shop at let's say Amazon or Target or Best Buy, you get 5% back by using their card at their store. I think that works," said Rossman.
"They always try and sell that, but I know that's why they're asking. They're going to make money on it because somehow, I'm going to forget and then there will be a fee or whatever, so nope, not doing it," shopper Sarah Isaacs of Stillwater said.
The other situation where getting a new store card could provide enough savings: a sizable discount off a big initial purchase.
"Sometimes I hear from people that they saved $1,000 on appliances by signing up for the store credit card. That may be worth it again if you can pay in full and avoid interest. Not, though, if you're saving $10 off a $100 purchase," said Rossman.
One common promotional tactic during the holiday shopping season is a 0% interest promotion.
"The gotcha there is that many store cards charge what's called deferred interest. If you don't pay the full amount by the time the clock runs out, they go back and charge you retroactively for all of the interest that would've accumulated," explained Rossman.
Shoppers WCCO talked with say the combination of inflation and the rising credit interest rates is giving them pause.
"We're really having to be very deliberate and very purposeful on what we consume," Alyssa Schaffer, of Hudson, Wisconsin, said.
"If I can't afford it, I don't buy it all," said Isaacs.
There is no federal law limiting the interest credit card companies can charge in general. Democrats and Republicans have introduced bills in recent years to cap rates, but none have gone anywhere.