The Fed Voted to Hold Rates Steady. Your Credit Card’s APR Will Likely Do the Same

At its first meeting of the year, the Federal Reserve voted to leave interest rates steady. That means your credit card interest rate isn’t likely going anywhere, either.

The central bank voted Wednesday to keep the federal funds rate at a target range of 4.25% to 4.50%, noting in its press release, “Inflation remains somewhat elevated.” Inflation rose 2.9% year-over-year in December, as expected, but inching further from the Fed’s 2% goal.

While some experts predict that the Fed will lower rates later this year, credit card interest rates will likely remain high for the foreseeable future. In the meantime, you should maintain the course of working to pay down any debt you have.

If you’re struggling with credit card debt, there are steps you can take

Your card’s APR will change soon, but it won’t be by a drastic amount. 

“I don’t think a drop in the federal funds rate will offer much relief to cardholders who are carrying balances,” credit expert John Ulzheimer, formerly of FICO and Equifax, said via email. “Paying 23% instead of 25% still means you’re paying 23% to service your debt. That’s certainly better than a stick in the eye, but to say it’s ‘good’ isn’t accurate.”

That doesn’t mean it isn’t worth tackling your debt. The earlier you start to get a handle on things, the better off your financial future will be.

1. Pay at least the minimum monthly payment on time

Even if you can’t pay your full balance, making the minimum payment will help to keep you out of hot water.

“At the very least, you should be paying the minimums on your cards to avoid late fees and damage to your credit,” said credit expert Leslie Tayne. “However, it should be a priority to eliminate this debt completely, even if that means slowing progress on savings and other goals.”

If you miss a payment, not only could you damage your credit, but you might be on the hook for costly late fees.

2. Pay off, or at least down, existing credit card debt

If you’re looking for a way to pay down high-interest credit card debt, these strategies could help lower your balance.

The first option for paying off your debt is simple, if you’re able to do it: apply your disposable income to credit card debt. (Don’t panic if you don’t have enough disposable income.)

The average US consumer has around three credit cards, so your credit card debt might be spread across multiple balances of accounts. 

There are two popular methods for paying down multiple balances: the snowball method and the avalanche method.

• The snowball method suggests paying off your smallest debt first, regardless of its interest rate, while making minimum payments on the other cards. This “small wins” strategy lets your initial success carry you until you pay the debt with the highest balance. 
• The avalanche method, on the other hand, proposes that you start with the debt with the highest interest rate. Once you’ve paid off that high-interest balance, you move on to the balance with the next highest interest rate, and so on.

But which method is better? 

Avalanche method proponents — and many personal finance experts — will tell you that paying off high-interest debt first makes more sense from the financial standpoint. If you pay down the debts with the highest interest rates first, you’ll spend less overall on interest charges. 

But if paying off that debt will take you years, it can be discouraging to see minimal progress for maximum effort. You might end up throwing in the towel and continue accruing debt.

My advice is to go with the method that’ll keep you going, whether it’s snowball, avalanche or a combination of both. In the end, what’s important is to save money by avoiding interest charges.

3. Transfer your balance to a 0% APR credit card

If you have a good credit score, you may be eligible to apply for a balance transfer credit card. The best balance transfer cards let you transfer a balance from another card — as long as it’s from a different bank — and pay it with no interest for a set period of time, usually between 12 and 21 months.

“My top tip for anyone carrying a balance is to sign up for a 0% balance transfer card,” said Ted Rossman, a senior industry analyst at Bankrate. 

“You can move your existing, high-cost debt from one or more cards over to one of these cards and potentially save hundreds or even thousands of dollars in interest charges.”

The trick is to pay off your balance within the introductory period. And don’t make new purchases while paying down the transferred balance. 

Rather, hatch a plan. Divide the transferred balance — say $3,000 — by the promotional period, 18 months. 

With these numbers, you’d need to pay at least $167 monthly to pay it down within the given time frame. However, if you can, pay more. If you’re unable to pay down the balance in time, you could be stuck with a substantial APR.

Consider fees when shopping for a balance transfer card. Most cards charge a balance transfer fee, usually 3% to 5% of the amount transferred, though some cards charge no balance transfer fees. (Though, these cards generally are hard to come by and have shorter promotional periods.)

For a balance of $3,000 with a 3% balance transfer fee (the industry standard), you’d pay an extra $90. But that cost will typically be far less expensive than paying interest charges during the same period on a card with a regular APR. 

4. If you need more time than a 0% APR card can provide, consider a personal loan

If you need more time than a balance transfer offer allows, personal loans might make more sense, Rossman said.

Personal loans have lower fixed interest rates than credit cards, especially if you have good credit. It won’t be as low as 0%, but it could be relatively close.

Personal loans could provide five to seven years for you to pay down the balance. Apply for the loan and use the funds to pay off your credit card.

For people with poor or limited credit, consider a reputable nonprofit credit counseling agency, Rossman said. They provide helpful strategies for reducing debt with low fees.

5. Focus on paying down card debt, not on earning points or cash back

Every savvy cardholder’s dream is earning cash back, points and miles on everyday purchases and redeeming them for free trips or the newest smartphone. 

But if you’re carrying a balance on your credit cards and keep charging expenses you can’t pay at the end of the month for the sake of earning points, you should stop immediately.

Here’s why. 

The current average interest rate is above 20%. 

Some of the best credit cards earn up to 6% back in rewards per dollar spent on specific categories, like grocery store purchases or airline tickets. Most of the best flat-rate cash-back cards earn no more than 2%. 

So any cash back, points or miles earned will be easily wiped out by interest charges if you don’t pay for your purchases in full when your statement is due.

Set aside your cards while you work to pay off the balance. Rewards can be used to lower your overall balance through statement credits, though likely not as fast as interest charges can accumulate.

6. Consider additional sources of income to pay off credit card debt

But what if you don’t have any additional cash at the end of the day, or the month, to pay down card debt? 

That might be why you got into debt to begin with — and that’s OK. We’ve all been there. But adding an extra source of income can help you tackle any debt faster.

Here are a few ideas to try to earn more disposable income and pay down credit card debt:

• Take on a side hustle. Are you good at math or fluent in a foreign language? Tutoring can be a viable option for a side job. Do you have free time during the week and a car in good condition? You might want to consider Uber, Lyft or DoorDash. Many successful Etsy stores started as a side hustle. Rover, a dog walking app, lets you walk local pets, for a price. Consider an activity you enjoy and make sure to follow these tips, since taking on a side gig might have tax implications.
• Rein in your expenses. It may sound obvious, but it’s not always that simple. According to the Federal Reserve, 47% of Americans don’t have $400 in emergency cash. Whether this is your case or not, it might be time to align your expenses with your income, create a budget and stick to it. The good news is that you can add paying down card debt as one of your ongoing expenses, and you don’t have to create a budget from scratch or manage it all on your own. The best budgeting apps can help keep track of your spending and identify expenses to cut back.
• Sell stuff you don’t use that’s just sitting around the house. From that dress you wore only once at a wedding to the portable sauna you got for your birthday that’s collecting dust, selling items both used and new online can help you earn the extra cash you might need to pay off credit card debt. There are plenty of places to do that, including Facebook Marketplace.

7. Stop using your credit card and switch to cash or a debit card

Credit cards are great financial instruments to pay for large or unexpected purchases over time, improve your credit, earn points or cash back for trips or dream buys, or even give you access to generous travel benefits, like airport lounges or priority security access. But they can also tempt you to overspend and incur debt quickly if you don’t manage them responsibly.

If you find yourself spending more when using a credit card, maybe it’s time to give plastic a break. 

Studies suggest that paying with a credit card might lead to overspending because the “pay pain” is removed from the transaction.

In other words, when you charge a purchase on your credit card, the money doesn’t leave your wallet or bank account right away, which may mislead you into thinking you can afford whatever you’re buying.

Switching to cash might be more difficult than before, especially since many businesses during the pandemic switched to contactless payments or stopped accepting cash for safety reasons.

However, you could use a P2P payment app, such as Venmo or Zelle, or your debit card. That way, the moment you make a purchase or pay a bill, the money gets instantly withdrawn from your bank account, helping you see how much you’re spending.

If you’re looking for rewards, there are debit cards that offer cash back on purchases without the need for credit.

8. Leverage your credit with an intro 0% credit card

If you don’t carry a balance on your credit card right now, congratulations! But if you have good credit, you might still want to consider applying for a no-interest credit card.

Even if you pay your balance in full every month, there may be some benefits in the midst of rising (or in this case, stalling) interest rates. You can pay for a big-ticket purchase interest-free or have an intro 0% APR credit card on hand in case of emergency. 

Lowering your credit utilization ratio may improve your credit score too, which a new line of credit could help with.

This simple move could be beneficial for you in the long run, particularly if you plan to finance a home, auto or other big purchase in the future.

How the Fed’s decision affects your credit cards

The Fed opted to hold rates steady at Wednesday’s meeting, which means your credit card’s interest rate will likely remain mostly unchanged for now.

While the Federal Open Market Committee members penciled in two cuts in 2025 at its December meeting, the Fed may change course depending on how the economy evolves in response to a new administration’s monetary policy.

However, you shouldn’t wait to act on your credit card debt for further cuts. Try out these tips to try to lower your credit card debt now. And if there’s one thing you do, make sure it’s at least paying the minimum required payment on time.

“You should not expect your credit card rates to drop to a ‘low’ rate just because the Fed lowers the federal funds rate,” Ulzheimer said. “Your best bet is and has always been to pay the balance in full each month so the interest rate on your card is irrelevant because you’re not paying any interest.”

The impact of the Federal Reserve on credit cards

The Federal Reserve is in charge of setting the monetary policy for the US. It aims to bolster labor and stabilize the country’s economy. When inflation is high, the Fed’s main course of action is raising the federal interest rate, or the rate at which banks can borrow and lend funds.

By raising or lowering the federal funds rate — the overnight interest rate between banks — a domino effect can lead credit card issuers to increase or decrease their APR. Though the federal funds rate only directly dictates lending between banks, this affects the banks’ costs, which are in turn passed on to consumers, affecting interest rates on consumer products, like loans and credit cards.

The prime rate, which is the basis for all borrowing rates for bank customers, is derived from the federal funds rate. Premiums are tacked onto it depending on an applicant’s creditworthiness and institutional factors. This yields effective interest rates, such as credit card annual percentage rates.

But how soon after the Feds change benchmark interest rates should you expect your credit card rates to rise or fall? Credit card APRs are usually adjusted within a billing cycle or two. You’ve probably already been subject to new APRs from previous rate hikes, maybe without even realizing it.

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