Paying the average credit card interest rate could keep you financially stagnant forever. Consumer debt, often fueled by credit cards, is notoriously bad because it usually funds unnecessary purchases like extra designer jeans or luxury watches. The real kicker, though, is the sky-high interest rates on credit cards. These rates make it incredibly hard to escape the debt trap, keeping you poor in the long run.
Let’s break down the numbers: As of 2019, the average credit card interest rate is a staggering 17%. This rate hasn’t budged much despite the Federal Reserve cutting its rates significantly. Credit card companies are making a killing with these rates, which are the highest they’ve been in 25 years, despite lower treasury bond yields. Even investment mogul Warren Buffett hasn’t managed returns as high as these interest rates!
The situation is even more frustrating when you consider how these rates have increased over time. Since mid-2014, the average credit card interest rate has climbed by 4.6%, a sharper increase than the fed funds rate. This discrepancy shows just how much credit card companies profit from us, which feels like highway robbery.
It’s clear that the stock market and other investments don’t grow nearly as fast as our debts from these cards. From 1999 to 2018, for example, the S&P 500 grew at an average of just 5.6% per year. So if your debt grows at rates as high as 17%, you’re losing money fast.
The bond market shows that economic growth might slow down, yet credit card rates remain high, which tells us that companies are squeezing consumers as much as they can before an economic downturn.
If you find yourself in revolving credit card debt, it’s time to think about refinancing. The gap between personal loan interest rates and credit card interest rates is the widest it’s been in two decades. Securing a lower rate on a personal loan could save you from the harsh cycle of credit card debt.
Lastly, consider investing in credit card companies if you’re looking for investment opportunities. Companies like Visa and Mastercard have seen significant growth, although they could suffer if the economy worsens and default rates rise. However, joining the ranks of credit card issuers might not sit well with everyone, given the predatory nature of high credit interest rates.
To sum up, steer clear of credit card debt to protect your financial health and consider more sustainable financial practices to secure your future.
