Inflation made most things more expensive in 2022, including credit card debt. So what does 2023 look like? No one knows for sure, but we can make an educated guess. Here’s why your credit card interest rate—also called APR, meaning annual percentage rate—might go up.
Will My Credit Card Interest Rate Go up in 2023?
It’s certainly possible your credit card interest rate will go up in 2023. Most credit cards have variable interest rates, meaning your account’s interest rate is tied to a benchmark such as the Prime Rate. When the Prime Rate increases, your credit card APR also goes up.
The Prime Rate itself is influenced by something called the federal funds rate, set by the Federal Reserve. In 2022, the Fed hiked this rate six times, attempting to combat inflation.
Each time the Fed raised interest rates in 2022, credit card accounts with variable APRs also increased rates. If this continues in 2023, you can expect to see your card’s APR go up.
It’s also important to note that credit card issuers can increase your interest rate even when the Prime Rate does not change, so long as they provide you notice 45 days ahead of time.
How Expensive Is Credit Card Debt?
It’s well known that credit card debt is not cheap. Consider this hypothetical: If you were to pay off a $2,000 balance over 12 months on a credit card with a 20% APR, you’d have to make payments of about $185.27 per month, and would pay about $223.23 in interest charges.
One reason credit card interest can be so costly is that it’s compounded daily. In other words, the interest you owe is calculated each day and added to your balance—and when the next day’s interest is calculated, it’s based on that new balance including the previous day’s interest.
Can I Avoid Paying Interest on My Credit Card?
There are typically two ways to avoid paying credit card interest. One is if you pay your card off in full each month, which allows you to take advantage of your grace period. But know that if you roll a balance over from month to month—for example, if you only make the minimum payment due—you’ll lose your grace period and incur interest charges. And, you’ll be charged interest not just for the month you carried a balance but for the following month as well.
The other way to avoid credit card interest is to take advantage of a card with a 0% introductory APR. These cards offer intro periods of 0% interest for new cardholders, often ranging from 12 to 21 months long. Some cards have intro APR offers on new purchases, others on balance transfers and some on both. But be aware you still have to make at least the minimum payment due each month, even though you’re not being charged interest while in the promotional period.
