Will My Credit Card Interest Rate Go Up In 2023?
Inflation made most things more expensive in 2022, including credit card debt. So what does 2023 look like? No one knows for sure, but we can make an educated guess. Here’s why your credit card interest rate—also called APR, meaning annual percentage rate—might go up.
Will My Credit Card Interest Rate Go up in 2023?
It’s certainly possible your credit card interest rate will go up in 2023. Most credit cards have variable interest rates, meaning your account’s interest rate is tied to a benchmark such as the Prime Rate. When the Prime Rate increases, your credit card APR also goes up.
Each time the Fed raised interest rates in 2022, credit card accounts with variable APRs also increased rates. If this continues in 2023, you can expect to see your card’s APR go up.
It’s also important to note that credit card issuers can increase your interest rate even when the Prime Rate does not change, so long as they provide you notice 45 days ahead of time.
How Expensive Is Credit Card Debt?
It’s well known that credit card debt is not cheap. Consider this hypothetical: If you were to pay off a $2,000 balance over 12 months on a credit card with a 20% APR, you’d have to make payments of about $185.27 per month, and would pay about $223.23 in interest charges.
One reason credit card interest can be so costly is that it’s compounded daily. In other words, the interest you owe is calculated each day and added to your balance—and when the next day’s interest is calculated, it’s based on that new balance including the previous day’s interest.
Can I Avoid Paying Interest on My Credit Card?
There are typically two ways to avoid paying credit card interest. One is if you pay your card off in full each month, which allows you to take advantage of your grace period. But know that if you roll a balance over from month to month—for example, if you only make the minimum payment due—you’ll lose your grace period and incur interest charges. And, you’ll be charged interest not just for the month you carried a balance but for the following month as well.
The other way to avoid credit card interest is to take advantage of a card with a 0% introductory APR. These cards offer intro periods of 0% interest for new cardholders, often ranging from 12 to 21 months long. Some cards have intro APR offers on new purchases, others on balance transfers and some on both. But be aware you still have to make at least the minimum payment due each month, even though you’re not being charged interest while in the promotional period.
Also, know that 0% intro APR credit cards are typically reserved for applicants with good or better credit. A good credit score is generally considered a FICO Score of 670 or higher.
Steer clear of deferred interest offers. These may seem like 0% intro APR offers at first glance, but are risky—if you fail to pay your balance off within the promotional period, you’ll be charged interest on the full purchase amount from the date of purchase, not just on what remains.
How Can I Get Out of Credit Card Debt?
When paying down debt, there are two main strategies—the debt snowball and the debt avalanche.
With the debt snowball method, you pay down your debts from smallest to largest. You must make at least the minimum payment due on each account, of course, but anything extra you have in your budget each month should go toward the account with the lowest balance.
What this does is provide motivation. You get the easy wins first, and see visible progress.
With the debt avalanche method, you pay down your debts in order of highest interest rate to lowest interest rate. This ends up saving money in the long run on interest charges.
In addition to the methods above, you may wish to consider a balance transfer card or a debt consolidation loan. With a balance transfer card, you move debt from one or more cards to a new card (from a different issuer) offering a 0% intro APR. There’s typically a balance transfer fee of 3% to 5%. However, even after the fee, you’re likely to save compared with interest charges. Just make sure you can pay off what you owe in full before the intro period ends.
A debt consolidation loan will not let you avoid interest charges. However, you may get a better rate than what you’re paying on high-interest credit card debt. And, with a loan, you have a set monthly payment and a predetermined payoff date—unlike a credit card, which allows you to continue with minimum monthly payments, potentially miring you in a cycle of increasing debt.
Without a crystal ball, you can’t be 100 percent sure your interest rate will go up in 2023. However, if 2022 is any indication the chances of you paying more to carry a balance are high.