Another Fed rate cut could help ease costs for certain borrowers, but it may not have the same impact on your credit card debt.
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The Federal Reserve is widely expected to announce another interest rate cut this week, continuing its pivot away from the aggressive rate hikes that defined much of 2022 and 2023. And with millions of Americans carrying credit card debt — and cardholders owing a record $1.23 trillion collectively — there's an understandable hope that this latest cut could finally offer some breathing room to borrowers who are facing high monthly card payments.
After all, when the Fed raises rates, credit card APRs tend to follow that same trajectory shortly after. That's part of the reason why the average credit card interest rate now hovers above 22%, with some cards charging well over 25% or more, especially for those with less-than-perfect credit scores. So it stands to reason that when the Fed reverses course and cuts rates, credit card rates should fall just as quickly, right?
Unfortunately, the relationship between Fed rate cuts and credit card relief isn't that straightforward. So what's likely to happen to credit card rates if the Fed issues its third cut of 2025 this week? That's what we'll examine below
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What will happen to credit card rates if the Fed cuts rates again this week?
If you're hoping that another Federal Reserve rate cut will result in immediate relief on your credit card bill, you'll likely be disappointed. While credit card rates are technically variable and tied to the prime rate, which moves in sync with the Fed's benchmark rate, the reality is that credit card issuers don't treat rate increases and decreases equally.
When the Fed raises rates, credit card companies tend to pass those increases along to cardholders almost immediately. But when the overall rate environment eases? Well, that's a different story. Historically, card issuers have consistently shown a pattern of being quick to raise rates but slow to lower them, and there's no legal requirement forcing them to pass along the full benefit of a Fed rate cut to cardholders, either.
In other words, even if the Fed delivers the expected 25-basis-point cut, your credit card APR is unlikely to drop, and if it does, it will almost certainly not be by a corresponding quarter of a percentage point. Credit card companies have wide discretion in setting rates, and will base them on factors like your credit score, payment history and their own profit considerations. Plus, card issuers often choose to keep rates elevated in uncertain economic times as a buffer against potential increases in defaults.
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What strategies can you use to lower your credit card rates now?
If you're currently carrying a balance at today's elevated rates, waiting for your card issuer to voluntarily reduce your rate is likely to cost you far more in interest than taking proactive steps to lower it yourself. Here are a few routes worth considering:
Consider what formal debt relief can offer. For cardholders struggling with significant balances, formal debt relief strategies, like debt settlement or credit counseling, can help lower rates or dramatically reduce what's owed. A debt relief company, for example, can try to negotiate with creditors on your behalf to reduce your total balance. Or, a credit counselor can help you create a debt management plan that consolidates your debts into one monthly obligation, typically with lower interest rates and fees.
Transfer your balance to a 0% APR card. Many credit cards offer promotional 0% APR periods on balance transfers, which typically last between 12 to 21 months. If you have good credit and can qualify for a balance transfer offer, this strategy can save you significant money in interest charges while you pay down the principal. Just be mindful of balance transfer fees, which are generally between 3% to 5% of the transferred amount.
Negotiate directly with your card issuer. Simply calling your credit card company and asking for a lower credit card interest rate can sometimes work, especially if you have a solid payment history. Card issuers would often rather keep you as a customer with a reduced interest rate than lose you entirely, so it's typically worth picking up the phone to ask.
Swap out your card rates with a debt consolidation loan. Using a debt consolidation loan with a lower fixed interest rate to pay off your credit card debt can offer substantial savings. These loans also streamline the repayment process — and they can provide the psychological benefit of a clear payoff date and fixed monthly payments.
The bottom line
While the Fed's anticipated rate cut this week may offer benefits to certain types of borrowers, credit card users shouldn't count on it offering them meaningful relief from today's high rates. The unfortunate reality is that credit card rates rise quickly but fall slowly. So, if you want to save on credit card interest charges, you'll need to take matters into your own hands. Whether through a debt relief program, balance transfer, direct negotiation or consolidation, the most effective way to reduce your credit card interest burden is to pursue strategies that don't depend on the goodwill of credit card companies.
Edited by Matt Richardson
