Will credit card interest rates drop soon? Experts weigh in

Credit card interest rates and balances have been on a roller coaster over the past several years, and inflation has been a key contributing factor. For example, in November 2024, the latest month for which the Federal Reserve provides data, the average credit card interest rate sat at about 22%, up considerably from a low of about 15% during the pandemic.

Meanwhile, credit card balances have also risen recently, a stark contrast to how revolving credit debt fell by more than $120 billion in 2020 when rates were much lower in 2020. While cardholders were able to pay down debt during that lower-rate time, when you fast forward to 2025, it's clear that today's high-rate environment is having a big impact, with credit card balances sitting at a record high of $1.21 trillion nationwide.

Given today's high rates and high credit card balances, millions of cardholders would significantly benefit from credit card rates easing soon. But is that going to happen? Here's what experts say.

Find out how to start tackling your expensive credit card debt now.

Will credit card interest rates drop soon? Experts weigh in

Today's high credit card rates can be blamed, at least partially, on inflation, experts say. 

"When inflation is high, lenders need to charge more so that the money they get back from borrowers won't have lost value to inflation by the time it's repaid," says Richard Barrington, a CFA and financial analyst for Credit Sesame. "Also, when inflation is rising, the Fed tends to raise interest rates, which affects the borrowing costs of banks. So, in general, it's fair to expect credit card rates to rise when inflation rises and fall when inflation falls."

Credit card interest rates don't perfectly track inflation, though. Over the past several years, the rates on this type of borrowing tool have risen more than inflation. And when inflation falls, credit card rates tend to fall slowly in comparison.

The repercussions of high inflation have also negatively impacted credit card balances.

"Unfortunately, as things get more expensive for consumers, they often turn to credit cards to bridge the gap between their income and other financial sources and the increased cost of living," says CFP and personal finance expert Bobbi Rebell. 

"In other words, inflation cuts into consumers' purchasing power, and they have to make up the difference somewhere," says Rebell. "As consumers become more dependent on credit cards to make ends meet, balances tend to move higher."

Inflation has eased month over month, though, according to the latest reading. So is that going to help drive down credit card rates soon?

Compare your top debt relief options and chat with an expert now.

Card rates could decrease, but widespread rate relief is unlikely

If inflation continues to fall, credit card interest rates may fall in 2025, experts say. They've already fallen from their peak, albeit just slightly, in the third quarter of 2024. As inflation falls, credit card companies may feel more comfortable lowering their rates. Changes made to the federal funds rate by the Federal Reserve could also impact rates in the future.

While the Fed doesn't directly dictate credit card rates, it sets the federal funds rate, which trickles down to other types of interest rates. The Fed decided to keep the federal funds rate at its current level at its March 2025 meeting, however — which means that for now, credit card rates will likely stay steady. Many analysts still expect the Fed to lower interest rates later in the year, though. 

"The Federal Reserve still plans to cut rates by half a percent this year," says Barrington. "That suggests that there may be room for credit card rates to fall - if everything goes according to plan. However, in its most recent meeting, the Fed raised its forecast for inflation this year and lowered its forecast for economic growth," says Barrington. "Both those things could be bad for credit card rates."

In other words, the short answer is that if credit card rates fall in 2025, it likely won't be a dramatic drop.

The federal funds rate isn't the only factor that could impact credit card rates in 2025, either, Barrington says. Even if the Fed does lower the federal funds rate, credit card companies could keep interest rates high — or even raise interest rates — if consumers continue to struggle and the risk to card issuers remains elevated.

"Rising inflation tends to push interest rates higher, but another important influence on credit card rates is credit risk," says Barrington. "When an increasing number of credit card customers fail to pay their bills, credit card companies are likely to raise rates to cover the cost."

Are there cost-effective alternatives to consider?

Many borrowers have found themselves going into credit card debt to keep up with rising expenses over the past couple of years.

"Most borrowers open a credit card in order to earn rewards, build credit, or for convenience — usually with the intent of paying off in full every month," says Daniel Shore, a money expert with LendingClub. "But life happens, and those plans can get sidetracked. Borrowers who are using a credit card to cover basic living expenses like gas and groceries should have a hard look at their budget. With inflation elevated for the foreseeable future, it's simply too easy to accumulate credit card debt that quickly snowballs."

If you've been relying on a credit card to meet your financial obligations, careful budgeting is the most important first step. The simple (but also difficult) answer is that avoiding going into debt for your living expenses requires either increasing your income or decreasing your expenses.

If you already have credit card debt, consider either using a 0% balance transfer credit card to lower the interest temporarily or consolidating your debt with a low-interest personal loan, a home equity loan or a home equity line of credit (HELOC).

Finally, when it comes to large unplanned expenses, consider cheaper alternatives to credit cards.

"For those who face an unexpected expense — such as a repair or medical bill — it's important to know that there are options beyond a credit card," says Shore. "One option is a personal loan from an online lender that offers fixed interest rates lower than credit card APRs. These lenders also typically provide structured repayment with clear end dates."

The bottom line

Inflation has driven credit card interest rates up over the past several years. That combination of high inflation and high interest rates has put a strain on many people's budgets. While credit card interest rates may fall in 2025, they're unlikely to change dramatically. Instead of holding out hope for lower interest rates, consumers are better off managing their budgets and looking for cost-effective borrowing alternatives.