Credit card APRs reach historic highs just ahead of holiday spending season
EDEN PRAIRIE, Minn. – Her shop is called Memories At Home, and owner Joanne Shockey just hopes people don't dwell on memories of a better economy.
"Crazy," Shockey said to WCCO. "I don't know how people get by without keeping the faith."
Shockey said her own family and their business is getting by thanks to what she calls a "journey" of paying off debt and downsizing as empty nesters.
"We have basically gotten everything paid off as far as credit card debt, student loans for our children. We just have our mortgage," she said. "We still use a credit card but only if we can pay for it."
That game plan is exactly what financial advisors recommend this holiday season, especially as rising interest rates to curb inflation are now trickling down to credit cards, where the average interest rate has reached a record high of 19.04%.
"If you have high interest rates on your credit cards, it means you can't get ahead," Nicole Middendorf, CEO of Prosperwell Financial, told WCCO. "This is where you've got to get the credit card debt under control."
A credit card interest rate, known as the annual percentage rate (APR), goes into effect when cardholders are unable to pay their bills in full each month. If you carry a balance, you're charged interest on whatever you owe the following month, and that balance grows over time.
Thursday, the average credit card APR surpassed its previous record of 19% in July 1991, according to Bankrate.com. In early 2022, the typical card had an APR of 16.3%.
"I know it's that dreaded 'b word' - Budget," Middendorf said. "No one likes to do it, but you have to do it like if you have a credit card. You really need to find a system that works for you in a budget, so that you're living within your means."
Despite the rising rates, The National Retail Federation estimates holiday retail sales during November and December will grow to as high as $960 billion - up 6%-8% from 2021.
