Why your credit card debt is so expensive right now (and what to do about it)

Credit card debt has reached alarming levels nationwide. Right now, one in five credit card users are maxed out, a stark indicator of the widespread financial strain. Payment delinquencies are also on the rise, signaling that an increasing number of cardholders are struggling to meet even minimum payment requirements. Perhaps most concerning, though, is the total amount of credit card debt nationwide, which surged to $1.14 trillion in the second quarter of 2024.

These trends are not merely statistics; they represent real financial hardship for millions of Americans — and the dangers of this escalating credit card crisis are multifaceted. For cardholders, high levels of credit card debt can lead to damaged credit scores, making it harder to take out loans, secure housing or even find employment. On a broader scale, rising credit card delinquencies and defaults can impact the stability of the overall economy.

One of the key factors exacerbating this crisis is the high cost of credit card debt. If you've been carrying a credit card balance, you've likely noticed your monthly payments are impacting your budget even more than they were a couple of years ago. Below, we'll detail why that's happening and what you can do to fix it. 

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Why your credit card debt is so expensive right now

Several factors contribute to the high cost of credit card debt in the current economic climate, including:

High regular APRs

Interest rates on credit cards are at record highs right now, and that's having a big impact on affordability. The average annual percentage rate (APR) for credit cards is almost 23%, nearly double the 12.9% average from late 2013. With card rates as high as they are, carrying a balance becomes increasingly expensive over time as interest compounds on your unpaid balances.

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Excess fees

For cardholders who are already struggling to pay what they owe, any additional fees charged by the card issuer can quickly compound the problem. For example, late payment fees, over-limit fees, balance transfer fees and annual fees for rewards cards can add significant amounts to the overall debt. Plus, these fees are often applied at flat rates, which can be particularly burdensome for those with lower balances.

Penalty APRs

Many credit card agreements include clauses that allow issuers to dramatically increase the interest rate if the cardholder misses payments or exceeds their credit limit. These penalty APRs can be significantly higher than the regular APR, often reaching 29.99% or more. Once triggered, these rates can make it extremely difficult for cardholders to make meaningful progress on their debt.

Minimum payment traps

Credit card issuers often set low minimum payment requirements, which can be either a flat fee (about 2% to 3% of the balance) or a percentage of the balance (typically 1% of the balance plus interest) — whichever is higher. While having a low minimum payment on your credit card may seem helpful in the short term, it can lead to long-term debt issues. 

How to lower the cost of your credit card debt

While the current situation may seem daunting, several strategies can reduce the cost of your credit card debt:

Negotiate with your credit card issuers 

Contacting your issuer and requesting better terms can be surprisingly effective, especially if you have a history of on-time payments. Some issuers may be willing to lower your APR, waive certain fees or even offer temporary hardship programs if you're facing financial difficulties.

Consider balance transfer offers 

With good credit, you could qualify for a balance transfer credit card that has a 0% APR introductory period. Transferring your high-interest debt to this type of card can provide a window of opportunity to pay down the balance without accruing additional interest. Be aware, though, that there are typically balance transfer fees associated with this option.

Explore a debt consolidation loan 

A debt consolidation loan can also make sense for certain cardholders. By consolidating multiple credit card balances into a single, lower-interest loan, you can reduce your overall interest costs and gain a clear payoff timeline.

Use a debt management plan 

Many credit counseling agencies offer debt management plans that can help you lower interest rates and consolidate payments. These programs typically work with your creditors on your behalf to secure more favorable terms.

Try and settle your debt

For those facing severe financial hardship, credit card debt forgiveness, or debt settlement, may be an option. This involves negotiating with creditors to accept less than the full amount owed. However, this approach can have significant negative impacts on your credit score and should be considered a last resort.

The bottom line

While the current cost of credit card debt is undeniably high, it's not an insurmountable problem. By understanding the factors contributing to these high costs and employing strategic approaches to debt management, you can work toward regaining your financial footing. Whether through negotiation, consolidation or structured repayment plans, there are paths forward for those struggling with credit card debt. The key is to take action promptly and remain committed to the goal at hand.