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Credit card debt is still a big problem even though the Fed didn't hike interest rates

Americans with credit card debt won't see any relief even after the Federal Reserve decided against hiking its benchmark rate on Wednesday.

Their situation just won't get worse — for now.

On Wednesday, Fed policymakers kept the range for the federal funds rate unchanged at a 22-year high between 5.25% and 5.5%. But Fed Chair Jerome Powell indicated that the majority of officials expect at least one more quarter-point hike before the end of the year.

Read more: How does the Fed affect your credit card interest rate?

That means credit card interest rates – which march in sync with the central bank’s rate – could increase before the year-end. At the very least, they will remain near four-decade highs for the foreseeable future — troubling news for folks who have piled on debt.

"Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon," Matt Schulz, credit industry analyst for LendingTree, said. "While we don’t know what the Fed will do going forward, cardholders’ best move is to assume that rates will continue to rise and do what they can to knock their credit card debt."

"It’s certainly easier said than done when life is so expensive in 2023, but it should be the goal," he added.

An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg, Getty Images)
An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg, Getty Images) (Robert Nickelsberg via Getty Images)

‘Credit card rates are the highest they’ve been in decades’

Outstanding credit card balances topped $1 trillion this year for the first time ever, with borrowers undeterred by interest rates that are at their highest level in nearly 40 years. According to Bankrate, the average APR this week was 20.71.%

Store credit cards have even higher rates, separate data from LendingTree found, with APRs averaging 30% or higher.

"The truth is that today’s credit card rates are the highest they’ve been in decades, and they’re almost certainly going to keep creeping higher in the next few months," Schulz said.

For someone shouldering credit card debt, elevated interest rates can make it harder to pay off balances quickly. Instead, those paying just the minimum could see their balances balloon.

There are also recent signs that cardholders are struggling more with their debt. The delinquency rate on credit cards reached 2.77% in the second quarter of 2023, according to the Fed, the highest level since 2012 when it was 2.82%.

Last month, over half of credit card borrowers (51%) couldn’t pay off their entire balance each month and let the debt roll over from one month to the next, accruing interest, a separate study from J.D. Power found. That was the first time the share of Americans revolving their debts was higher than the portion who paid their bill in full.

"Don’t just take higher rates sitting down. You have options," Schulz said.

‘Break the cycle of debt’

A display of credit cards accepted for use is seen on a door as a shopper steps out of a store on September 12, 2023 in Monterey Park, California. Credit card debt from US consumers is rising by billions of dollars amid higher inflation and interest rates, topping $1 trillion for the first time in history, according to the Federal Reserve Bank of New York. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A display of credit cards accepted for use is seen on a door as a shopper steps out of a store on Sept. 12, 2023, in Monterey Park, Calif. (Photo by FREDERIC J. BROWN/AFP via Getty Images) (FREDERIC J. BROWN via Getty Images)

The first step is to ask for a lower interest rate.

More than three-fourths of cardholders who asked for a lower APR for their credit card in the past year received one, according to an April 2023 report by LendingTree. Folks who asked got at least 6 percentage points off their APR.

"The fact that card issuers are still willing to give breaks like that, even in the wake of a year of frequent rate hikes, is great news for cardholders," Schulz said. "However you slice it, it is well worth your time to make a call."

According to Schulz, borrowers may also benefit from transferring their debt to a 0% balance transfer card. They are still available and people with good credit standing can get up to 21 months with zero interest.

Those that can, could also consider opening a high-yield savings account, which have also benefited from Fed hikes.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

"You can break the cycle of credit card debt by building your savings while you pay down your debt. Yes, it can be easier said than done, and yes, that means it will take a little longer and cost a little more to pay down that debt," Schulz said. "However, once you do, that extra savings will help you avoid going right back into debt over a flat tire or an emergency trip to the vet."

According to, the average online savings account yield is now 4.39%, up from 3.31% in January and up from 1.81% one year ago. The highest online savings account yield is currently 5.30%.

"Savings-account yields are the highest they’ve been in years, so that money you put away will grow faster than you’d expect," Schulz said. "That’s one of the precious few silver linings from the past year of rate hikes."

Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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