Why are credit card rates so high right now? Here's what experts say.

Most consumers know that interest rates are high these days. But on credit cards? Rates are about as high as they've ever been. In fact, the average interest rate on a commercial credit card is nearly 21% these days, according to Federal Reserve data. That's nearly double the rate seen 10 years ago.

"Today's credit card rates are near historic highs," says Michael Desimone, chief lending officer at Citadel Credit Union. "While rates have been rising for years, the current environment reflects a prolonged period of elevated borrowing costs that consumers haven't experienced in decades."

The reasons for these sky-high rates are many, experts say, and the nature of compounding interest only makes matters worse. Fortunately, there are things you can do to reduce your rate (and overall credit card debt) and regain control of your finances. But that starts with understanding why rates are as elevated as they are right now.

See which credit card debt relief options are available to you here.

Why credit card interest rates are so high right now

Historically speaking, credit card rates are extremely high. While they are down from their nearly 22% peak seen in mid-2024, they're still well above 20% — and experts say there's no sign of a significant fall from that point anytime soon. Here's why:

The Federal Reserve

One of the biggest reasons rates are where they are is because of the Federal Reserve's lengthy bout of rate-raising. The central bank increased its federal funds rate multiple times between 2022 and 2023, and that pushed consumer interest rates up as a result, particularly those tied to the prime rate, which is the majority of consumer credit cards.

"As the Fed has raised rates to combat inflation, almost every type of borrowing has become more expensive," says Telisa Shead, director of private banking at Amegy Bank. "Credit cards in particular tend to track the prime rate, which moves almost in lockstep with the Fed's policy rate. Because the Fed's increases over the past couple of years have been significant, credit card APRs have risen accordingly, often landing in the mid-20% range."

But while credit card issuers are typically quick to increase rates when the Fed moves rates upward, they're less apt to reduce rates when the Fed does the same. And if they do ease rates? It's only in very small increments — typically not anything significant. 

"Credit card APRs are typically tied to the prime rate, which moves with Fed policy," says Howard Dvorkin, chairman of Debt.com. "But unlike mortgages or auto loans, credit card rates adjust upward fast and come down slowly."

Learn how you could reduce your credit card interest rate here now.

Credit card issuers

Credit card issuers are also pricing in profit when managing consumer interest rates. As Dvorkin explains, "Credit card rates rose quickly because they're tied to the economy, but the reality is that they stay high because issuers choose not to lower them. High rates aren't just economic, they're strategic."

Risk plays a role, too, and risk for card issuers is rising. Average U.S. credit scores are down, according to FICO, and credit card utilization rates (the percentage of a person's credit line that they actually use) are up. Both of these make doling out cash riskier. 

"The other major factor is the rising consumer delinquency rates," says Chuck Czajka, a certified financial fiduciary and founder of Macro Money Concepts. 

Delinquencies — meaning accounts that are past due — have been rising in recent years. In late 2021, the credit card delinquency rate was 1.53%. Today, it's nearly 3%. 

Compounding interest

Compounding interest doesn't make your interest rate high to begin with, but it does make your interest costs grow steadily over time. This can make it hard for consumers to get out from under credit card debt, especially if they're only making the minimum payments.

"Compounding interest means you're paying interest not only on the amount you originally charged, but also on any interest that has already been added to your balance," Desimone says. "With credit cards, interest compounds daily, so if you carry a balance month to month, the amount you owe can grow much faster than people expect. Even a balance that feels manageable at first can snowball quickly over time."

Shead calls compounding interest "essentially interest on interest," while Dvorkin says it's what makes credit cards "one of the most expensive forms of consumer borrowing."

How to deal with high-interest credit card debt right now

Fortunately, if you're dealing with high credit card rates right now — or want to avoid them when getting a new card — some strategies can help. Here's what you can do:

Choose your issuer carefully

If you're getting a new card, shop around and compare options and issuers, or if you have an existing card with a high rate, consider getting a card with a new institution and then transferring the balance. Make sure to include a variety of banks and credit unions, including online and brick-and-mortar ones.

"Some financial institutions, like credit unions, are subject to a cap imposed by regulators," Desimone says. "They also often offer lower rates than large national banks because they are not-for-profit and member-owned."

You should also look at banks you currently do business with, as they may offer relationship discounts, Shead says, or you may be able to negotiate rates with certain card issuers.

As Czajka explains, "Credit card companies will often compete for your business."

Consider consolidation or a 0% balance transfer card

Consolidation is another option. This is when you use a new loan or balance transfer card — one with a much lower rate — to pay off all your credit card balances. This reduces your interest costs and, usually, your monthly payments, too.

Personal loans and home equity loans can both suffice here. You can also look for a balance transfer card with a 0% promotional rate, as long as you're disciplined in paying it off before the low rate expires.

"Some cards also offer introductory 0% APR periods or lower ongoing rates for balance transfers, which can be helpful if used strategically," Desimone says. "Those offers work best when there's a clear plan to pay down the balance before the promotional period ends."

If you opt to use a consolidation loan, aim for a fixed-rate option. This will give you a set-in-stone payoff timeline, which credit cards just don't offer.

The bottom line

You don't have to go it alone if you're dealing with high credit card rates and balances. Seeking debt relief may be able to help, or you can contact a financial advisor or credit counselor, who can help you make a plan. "Nonprofit credit counseling and debt management plans often can reduce interest rates significantly, sometimes into the single digits," Dvorkin says. "There's no prize for suffering through high interest alone."