Interest rates have been in the headlines throughout 2022 as the Fed has engaged in a determined fight against rising inflation. The idea is that if the Fed raises interest rates enough, demand will decline and prices will fall accordingly.
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In the meantime, however, that means interest rates on everything from credit cards to home loans and car loans are expected to keep rising. Rates that might have seemed high not too long ago are the new norm, and that’s especially damaging for those with balances on their credit cards.
If you’re looking for a new credit card with a lower interest rate, here’s what you need to know about current rates, plus suggestions on how you can save the most money.
The average credit card interest rate
As of October 7, 2022, the average credit card interest rate was 16.27%, according to data from the St. Louis Fed. For accounts with assessed interest, this rate was significantly higher, at 18.43%. Both of these rates are well above the sub-12% credit card interest rates that were common in 2014. Even in 2020, the average rate for all cards was just 14.52%.
It is therefore clear that this is a difficult environment in which to carry a balance on a credit card. At an interest rate of 18.43%, in a theoretical world where you would make no payments, this debt would double in less than four years. That’s why it’s absolutely essential to get the lowest possible credit card interest rate if you have a balance.
How 0% interest rates work
If you have good to excellent credit, you may qualify for a promotional 0% interest rate on a credit card. As the credit card world is full of competitors, some issuers try to entice new customers by offering 0% interest rates that last 6-20 months. Depending on the issuer, these rates may apply to new purchases, balance transfers, or both.
However, nothing is ever truly “free”. Usually, promotional interest rates of 0% on balance transfers come with a 3% to 5% fee. Still, that’s a far cry from the high double-digit rates a standard card will charge you. Ideally, you’ll be able to refund your purchases or balance transfers during the promotional period and ultimately pay zero interest.
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Options if you have bad credit
The harsh reality is that the lower your credit score, the more difficult it will be for you to find a low interest rate on any type of loan, including a credit card.
One option is to use a secured credit card, in which any money you borrow is “secured” by a deposit. For example, a bank may issue you a secured credit card with a “credit limit” of $500 if you deposit $500 into your account. Over time, your payments are reported to credit agencies and your score can improve if you demonstrate responsible financial behavior. Secured credit cards often turn into traditional unsecured cards if you make timely payments for 12-18 months.
Another potential option is to call your creditor and ask for a break on your interest rate. Even if you have a low credit score, if you’ve never missed a payment, you could get a discount.
If available, one of the best options would be to transfer your existing balance to a 0% promotional rate card and then use that 0% time period to pay off your debt as much as you can. While these types of options are usually reserved for those with good credit scores, you may be able to get one if you’ve been a long-time cardholder with a good payment history. It never hurts to ask.
Remember: Don’t Plan to Wear a Sale
Paying off your credit card debt should always be one of the top priorities in your overall financial plan. While reducing the interest rate on any of your existing balances helps keep your debt from spiraling out of control, the goal should always be to completely eliminate that balance. This way, not only do you not have to worry about changing interest rates, but you can also direct your cash flow to your savings and investments instead of paying interest on your credit card. credit.
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This article originally appeared on GOBankingRates.com: What interest rate should you look for in a credit card?