Swiping your credit card is easy. But if you have a balance, paying it off could be a challenge. Especially if you don’t know your credit card’s annual percentage rate (APR). And surprisingly, a lot of people don’t. In a Bankrate study from December 2021, 41% of cardholders who carried a balance did not know their credit card APR. And with the Federal Reserve raising interest rates, knowing your APR is important now more than ever.
What is an APR?
Your credit card’s APR, or your interest rate, is how much extra money you’ll pay on any balance you don’t pay in full at the end of each billing cycle. This rate is usually set as an annual rate and can be a fixed rate or a variable rate. Currently, the average APR for new credit cards is 21.59%. If you don’t know your APR, you can find it in your credit card terms and conditions.
Most credit cards operate on a variable rate, which means the rate can change, often going up or down along with interest rates set by the Federal Reserve. When the Federal Reserve Board raises short-term interest rates, those increases affect interest rates on credit cards, as well as most other loan and savings products, such as savings accounts, mortgages, of credit with mortgage guarantee and other loans.
How does this affect me?
If you have a balance on a card with a high interest rate, plan to pay it off as soon as possible, without adding new purchases. If you get a tax refund, and most taxpayers do, use that money to pay down the debt. Even if the refund does not pay the balance in full, the reduced total will reduce the amount of interest assessed. Or you may want to take on a side hustle, using the extra money to pay off your balance.
Another option is to apply for a balance transfer card. Recently, cards from Wells Fargo, Capital One, Bank of America and others allowed balance transfers with an introductory rate of 0% for five to 18 months. You can also check to see if any current cards in your wallet offer balance transfer promotions.
Chase, for example, recently offered current Freedom Unlimited cardholders a promotional rate of 0% for transfers made before September 30. The 0% rate lasts through the October 2023 billing cycle, with a transfer fee of 4% of your balance. And you can’t transfer a balance from one Chase-issued credit card to another; the transfer must be from another financial institution or retail card.
Please note that with any balance transfer, if you don’t pay off your balance before the promotion ends, any remaining balance is generally subject to your card’s normal interest rate. And read the fine print: Your balance may be subject to retroactive interest charges.