While the best rewards credit cards can help you rack up cash back, points or miles on purchases, they usually come with high interest rates. Because of this, balances on your card can be challenging to pay off, especially if you don’t know your card’s annual percentage rate (APR). According to LendingClub's recent research, 47.1% of cardholders carrying a balance don’t know their credit card APR, an alarming number, considering the average credit card interest rate was above 20.79% as of mid-August 2024.
So, what is APR? Here's what you need to know.
What is APR?
The APR associated with your credit card is your card's interest rate. In other words, it's how much extra money you'll pay on any balance you don't pay off in full at the end of each billing cycle. APR is typically stated as a yearly rate, and it can be fixed or variable. If you don't know your APR, you can find it in your credit card's terms and conditions.
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Most credit cards operate on a variable rate, meaning the rate can change, often rising or falling in tandem with interest rates set by the Federal Reserve. When the Federal Reserve Board raises short-term interest rates, interest rates on credit cards and most other lending and savings products typically increase, like mortgages, home equity lines of credit, high-yield savings accounts and other loans.
In March 2022, when the Fed started hiking interest rates in an attempt to combat high inflation, credit card APRs rose. But as inflation began to slow, the central bank paused its rate-hiking campaign. When the Fed eventually cuts rates later this year, credit card APRs are expected to go down slightly but don't expect a huge drop.
How does APR affect me?
If you’re carrying a balance on a credit card with a high APR, plan to pay it off as soon as possible without adding any new purchases, or else you'll be stuck with expensive interest payments and can end up in credit card debt.
If you are struggling to keep up with interest payments on your credit card, applying for a balance transfer credit card to pay off credit card debt can be beneficial. Balance transfer credit cards offer an introductory 0% APR for qualifying balance transfers. The length of these introductory periods varies, but some of the best balance transfer cards allow you to avoid interest rates for up to 21 months. You can also check to see if any current cards in your wallet are offering balance-transfer promotions.
Keep in mind that with any balance transfer, if you don’t pay your balance by the time the promotion ends, any balance left over is generally subject to your card’s normal interest rate. And read the fine print — your balance could be subject to retroactive interest charges.
Use our tool, in partnership with Bankrate, to find the right credit card for you.
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