January credit card bills are often very sobering — like a splash of cold water the morning after a bit too much partying. Maybe you’ve just seen the consequences of your generous December…or maybe you are too afraid to look. Either way, January is often a good time to take stock of life, and get your diet and your budgeting back on track.
I’m sad to inform you that if your credit card bill looms large right now, it’ll be a bit harder to recover in 2019. That’s because, with little fanfare last year, average credit card rates hit their highest point this century, and just kept right on setting new highs all year. Things seemed bad last May when average rates hit 16.7%, then a recent-times record. But late last year, they pierced 17%, and as of this week, sit at 17.07, according to CreditCard.com.
The site points out that rates don’t reflect expected increases due to the Federal Reserve’s late December interest rate hike so…you can safely anticipate we’ll be looking at average credit card rates getting close to 17.3% pretty soon.
That’s a lot. My back-of-the-envelope calculations say that the average consumer who holds a credit card balance (a revolver) will pay about $1,100 a year in interest this year. That money goes right down the drain. It’s not doing anything for you. And it’s *roughly* equal to the nominal 2-3% wage increases that the Labor Department says Americans are seeing right now. In other words, at least part of those pay raises will be swallowed up by credit card interest hikes this year.
To be sure, not everyone pays interest on cards — about 30% of cardholders pay their bill in full every month, and another 25% or so don’t really use their cards. But fully 43% do pay interest, says the American Bankers Association, so interest rate increases are a big deal. And credit card rates are far more sensitive to Fed rate increases than other kinds of consumer loans, so if that’s you, discussion about interest rates should be of particular attention.
Back to the main problem: Average credit card rates are at an all-century high. That’s a big deal to a lot of people. I’m not quite sure why more hasn’t been made of it. I suppose for the same reason that all sorts of other important news isn’t breaking through right now: the Trump infotainment-industrial complex soaks up all the attention. Whatever the reason, if your finances are suffering from a holiday-season hangover, get to work on that. Now is not the time to be carrying balances on your credit cards.