Why your credit card interest rates could soon fall (and what to do until then)

Credit card debt has become a significant burden for many Americans, especially with credit card interest rates soaring to near-record-highs in recent years. Right now, the average credit card rate is closing in on 24% — but depending on your credit and borrower profile, your credit card rates may be even higher than that.

Given today's high-rate environment, the interest charges on any balance you're carrying could be substantial. For example, if you're carrying the average amount of credit card debt as most Americans (about $8,000) and your credit card rate is 24%, you would pay about $160 per month in interest charges alone on that balance. That could make it tough to chip away at what you owe.

But the good news is that today's high credit card rates may not be the norm for long. There's a chance that credit card rates could fall soon, providing some much-needed relief. Below, we'll break down why (and what to do in the interim).

Dealing with expensive credit card debt? Find out more about your debt relief options here.

Why your credit card rates could fall soon

The Federal Reserve's rate decisions play a pivotal role in shaping the interest rate landscape across various financial products, including credit cards. So, any changes in its approach can have a big impact on the rates being charged on these products. 

And while persistent inflation has prompted the Fed to keep rates locked at 5.25% to 5.5% (a 23-year high) over the last year, inflation has been cooling recently. As such, experts and analysts are increasingly confident that the Fed will finally start cutting rates in September.  

That, in turn, would have a direct impact on credit card rates, as credit card annual percentage rates (APRs) are typically tied to the prime rate, which closely follows the federal funds rate set by the Fed. So, when the Fed lowers its benchmark rate, credit card interest rates tend to follow suit.

And should inflation continue to improve, there will likely be a series of rate cuts that follow later in 2024 and into 2025. And while it's unlikely that the first Fed rate drop will be substantial, the cumulative effect of multiple cuts could have more of an impact on your credit card rates. 

Most experts expect the first rate drop to be about 0.25% with a cumulative reduction of 0.75% to 1% over the next 12 to 18 months. Should that come to fruition, it could translate to a similar decrease in your credit card APRs, potentially saving you quite a bit on interest charges, especially if you're carrying a substantial balance.

Compare your top debt relief options and start tackling your high-rate debt today.

What to do until credit card interest rates fall

Cardholders who are burdened with high-rate debt shouldn't wait for Fed action, however. There are a few strategies you can use now to tackle your card debt, including:

Debt consolidation

One of the most effective ways to tackle high-interest credit card debt is through debt consolidation. This approach involves taking out a lower-interest loan to pay off multiple credit card balances. There are debt consolidation-specific loans to consider, but you can also use other types of loans, like personal loans or home equity loans, to consolidate your debt. 

The benefit of these loans is that they generally offer significantly lower rates than credit cards, potentially saving you hundreds or thousands of dollars in interest charges. And, consolidating your debt into a single monthly payment can simplify your finances and provide a clear payoff timeline.

Balance transfers

Balance transfer offers can provide a reprieve from interest charges for those who qualify. Many balance transfer cards offer introductory 0% APR periods on transferred balances, typically lasting 12 to 21 months. This interest-free window allows you to focus all your payments on reducing the principal balance. Be aware, though, that these cards also typically come with balance transfer fees of between 3% and 5% of the transferred amount.  

Debt management

A debt management plan through a reputable credit counseling agency might also be worth considering. When you enroll in this type of plan, the experts you work with will typically try to negotiate lower interest rates with your creditors and will consolidate your payments into a single monthly amount, helping you save money. 

Debt forgiveness

In cases of severe financial hardship, it may be worth considering debt forgiveness (also known as debt settlement) programs. These options involve negotiating with creditors to pay less than the full amount owed in return for a lump sum payment. This can provide substantial relief to cardholders who can't afford their credit card bills, but it's important to understand the potential negative impacts on your credit score and the possible tax implications of forgiven debt.

The bottom line

When the Fed cuts rates, you may see your credit card rates follow suit — but if you're struggling to pay your cards off, don't wait for that to happen. By taking action now, you can significantly reduce the overall cost of your debt and improve your financial health. After all, while lower rates may provide some relief in the future, the most effective debt reduction strategies are those you implement today.