If you feel like you’re paying more than ever for your credit card, you’re right on the money. A just-out government report shows that American cardholders shelled out a record amount in interest and fees in 2022.
“By some measures, credit cards have never been this expensive,” the Consumer Financial Protection Bureau reported on October 25 to Congress. The average cardholder carrying a balance is paying an annual premium of almost 20% on purchases due to interest and fees, according to the bureau. Meanwhile, consumers are also being hit in the wallet by inflation, which has driven up the cost of everything from frozen vegetables to gasoline and housing, making it harder to afford even minimum payments.
For general purpose credit cards in 2022, the average minimum payment due was more than $100, according to the research. But for many people, that doesn’t make much of a dent: Almost 10% of cardholders are charged more in interest and fees each year than they pay toward their principal balance, the agency said.
Rewards Credit Cards Are Less Rewarding if You Carry a Balance
Rewards credit cards are alluring because they give you something—points, cash back—for doing things you normally do: buy groceries, fuel up your car, go out to eat. Using these cards for daily purchases means you can end up with all sorts of perks, including free hotel nights and airline upgrades.
But, the CFPB report said, unless you pay your balance in full each month, the cost of interest and fees “almost always exceeds” the value of the rewards you’re getting. That’s reflected in the data for groups of cardholders, too:
- Consumers who paid only part of their monthly balance paid 94% of all interest and fees charged in 2022 by major credit card companies but earned just 27% of the total reward value.
- Consumers who paid their total balances each month paid 6% of all 2022 interest and fees charged by major issuers and earned 73% of the total reward value.
If You Carry a Balance, You’re Paying More for Everything
When swiping a credit card, it’s easy not to think about how your spending is adding up, especially if you don’t pay the balance in full each month. According to the CFPB, in 2022 the interest and fees paid by the average balance-carrying cardholder increased their debt by roughly 20% of their balance.
The current average credit card interest rate is about 28%. Let’s say you have a credit card balance of $2,000 and make the minimum payment of $50 per month. It will take you 110 months, or more than nine years, to pay off the original balance. The interest you will have paid will be $3,474, making your total bill $5,474.
Borrowers With Low Credit Scores Get Hit Hardest
Generally, having a credit score below 619 means you’ll face higher interest rates and fees than you would with a higher credit score.
In 2022, the CFPB reported, many cardholders with low scores paid 30 to 40 cents in interest and fees for each dollar spent. If you made a $5,000 purchase while spending 40 cents per dollar on interest and fees, you’d pay an extra $2,000, raising your price for that $5,000 item to $7,000 in all.
At least four out of five cards held by people with lower credit scores were not paid off in full each month, the CFPB said. But that’s not uncommon, according to data from a 2021 Federal Reserve survey. It found that 45.7% of cardholders said they had carried a balance within the past 12 months; 41.6% said they had carried a balance within the last month
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