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Managing Credit Card APRs in a High Interest-Rate Environment

Matthew Levy Updated: June 28, 2023 • 4 min read
multiple credit cards

In a period of economic uncertainty, many people rely on credit cards to cover both standard and unexpected expenses. But with credit card APR averages at a historic high of 20%, it's critical to understand how high APRs affect your personal finances, and what we can expect for credit card rates in the near future.

What is an APR?

APR stands for Annual Percentage Rate. It's the cost you pay to borrow money on your credit card on an annual basis, expressed as a percentage. When you carry a balance or take out a cash advance, the APR determines how much interest you'll owe. It's critical to be aware of credit card APRs because higher APRs mean you'll pay more interest on your debt over time, potentially making it harder to pay off and leading to a cycle of debt if not managed carefully.

For example, say you have a $1,000 balance on a credit card that has a 20% APR. If you leave that balance unpaid for five years, that balance will grow to nearly $2,500.

As you can see, if you're not mindful of the APR on your credit card, you can end up paying a substantial amount in interest charges. This makes it harder to pay off your debt. Being informed about credit card APRs allows you to make smarter financial decisions, choose cards with lower rates, and manage your debt more effectively.

Fed Rates and Credit Card APRs

It's important to know that the Federal Reserve's rates directly affect the APRs on your credit cards. Most credit cards have interest rates that can change based on the "prime rate," which is influenced by the Federal Reserve's rates. When the Fed decides to increase its rates, banks usually raise the prime rate, which in turn leads to higher APRs on credit cards.

On the other hand, when the Fed lowers rates, credit card APRs can also go down. However, in a situation where the Fed has paused rate changes, the variable rates on your existing credit cards are likely to remain the same for now, assuming no other changes occur with the prime rate.

Despite the Fed's halt, credit card APRs remain at near-record levels, largely because of the previous rate increases by the Fed.

Looking ahead, you need to navigate this high APR environment carefully, balancing your spending habits with the potential costs of carrying a balance on your cards. The exact effects of the Fed's pause on future credit card APRs remain to be seen, but understanding this fundamental connection between Fed rates and credit card APRs can provide valuable insight into what might happen next for you. Being aware of these factors can help you make informed decisions and manage your finances more effectively.


Navigating a High APR Environment

The high APR environment is not just a fancy term—it's causing financial anxiety for many Americans. According to recent information from the Federal Reserve Bank of New York, Americans now owe a whopping $986 billion on their credit cards. That's a 17% increase compared to last year, and the highest it has ever been.

When interest rates on loans keep going up, it becomes harder to handle debt because the interest keeps adding up every month. This growing credit card debt shows how many households are struggling. 

Although the Fed's decision to pause rate hikes might provide a temporary relief, it doesn't solve the main problem of high APRs and their impact on your debt. You need to stay alert about the interest rates on your credit cards and find ways to manage and reduce your debt whenever possible.

Tips for Managing Credit Card Debt in Today's Economy

To stay on top of your debt, it's important to manage it well. This means using strategies to handle it effectively and being careful about how you use your credit cards. By doing this, you can have better control over your finances even when interest rates are high.

  • Prioritize payments: Focus on paying off high-interest credit cards first, as reducing those balances will save you more money in the long run.
  • Create a budget: Establish a realistic budget to track your income and expenses. This will help you identify areas where you can cut back and allocate more funds towards debt repayment.
  • Negotiate lower rates: Contact your credit card companies to negotiate for lower interest rates. Many creditors are willing to work with you if you communicate your financial situation and demonstrate a commitment to repayment.
  • Explore balance transfers: Consider transferring high-interest balances to credit cards with lower APRs or promotional 0% APR periods. Be mindful of any associated fees and ensure you can pay off the balance before the promotional period ends.
  • Get help from a professional: If you need help managing your debt situation, consider reaching out to an accredited debt consolidation provider. These professionals can review your personal finances and negotiate with your creditors for more favorable terms.

Remember, managing credit card debt requires discipline and consistency. By implementing these tips, you can take proactive steps towards reducing your debt and improving your financial well-being.

(Read our Top 5 Steps for Overcoming Credit Card Debt.)


The Fed's decision to pause interest rate hikes provides a critical moment of reflection for consumers and the credit card industry. While the pause might temporarily halt further APR increases, it doesn't negate the effects of previous hikes. With credit card APRs at near-record highs and consumer debt increasing, the path forward requires a careful balance of spending, borrowing, and debt management.

Understanding the connections between the Fed's rates, credit card APRs, and personal finance will be more crucial as the situation evolves. 

Written by Matthew Levy

Matthew is a freelance financial copywriter with 14+ years in financial services. He holds a Bachelor of Science degree in Economics with business and finance options and is a CFA Charterholder. He is from Vancouver, Canada, but writes from all over the world.