U.S. credit card interest rates hit a new all-time high

It’s never been more expensive to carry a credit card balance in America.

According to The Kobeissi Letter, a financial news publication, average U.S. credit card interest rates rose to 23.4% in August, a new all-time high.

“Over the last two years, rates have soared by 7 percentage points,” The Kobeissi Letter said.

To put that into greater context, Americans collectively owed $1.14 trillion in credit card debt at the end of the second quarter, meaning they pay more than $266 billion in annual interest.

As The Kobeissi Letter explained, consumer indebtedness rises to a record $1.36 trillion when factoring in other forms of revolving credit. At this level, Americans owe $318 billion in annual interest charges at current rates.

“To put this into perspective, Americans paid just half of that in 2019 at $160 billion,” the publication explained.

Lenders have been gradually increasing credit card APRs for several years now, capitalizing on the strong demand for credit and a lack of competition in the market. As Creditnews reported, large issuers charge even higher rates than the national average.

On the consumer side, a growing reliance on credit card debt is a troubling sign that household finances are struggling to keep up with rising costs.

Americans are addicted to credit

Although Americans have never been shy about using their credit cards for big-ticket items, they’re now relying on credit for everyday expenses.

According to a May report from the Urban Institute, 60% of consumers admitted using their credit cards to buy groceries.

The report said more consumers are stuck in a perpetual state of debt, where they constantly need to tap into new forms of credit to keep their heads above water.

This is consistent with an earlier report from the Consumer Financial Protection Bureau (CFPB), which found that 9.9% of credit card accounts are in “persistent debt,” meaning that minimum payments barely cover interest and fee charges.

Higher credit card APRs only make matters worse.

Perhaps the most concerning trend was revealed in August when TransUnion reported that the average U.S. credit card balance had grown by 4.8% from last year. As Creditnews reported at the time, credit card balances were growing faster than inflation.

According to TransUnion’s senior vice president of financial services, Paul Siegfried, borrowers “seem to be experiencing more significant inflationary pressures,” which is causing them to tap into their revolving credit more often.

Inflationary pressures have eased over the last six months, but that doesn’t mean prices are coming down.

As Federal Reserve governor Neel Kashkari recently explained, moderating cost pressures doesn’t mean prices are declining. On the contrary, the Fed expects prices to keep rising for the foreseeable future.

“I’m just going to be clear: we cannot get those prices to come back down,” Kashkari said, referring to the across-the-board price increases since Covid.

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• Only 2.5% of U.S. homes changed hands this year, Redfin says
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