Why are credit card interest rates so high? Unpacking the economics behind your debt

According to an article published in June 2025 by USA Today, credit card debt in the U.S. averages at $7,321. It also cited data showing the mean credit card interest rate is 21.4%. With such high figures, it’s easy to see why the country’s consumers now collectively owe credit card companies $1.2 trillion.

What’s less apparent is the answer to the question, “Why are credit card interest rates so high?” It’s a more complex subject, especially since the rates are still through the roof despite easing inflation.

We’ll address that question in this guide by exploring the factors behind elevated credit card APR (annual percentage rate), how high rates can affect you, and what to do about them, so read on.

Why Are Credit Card Interest Rates So High? 

Inflation, which refers to the increase in the prices of goods and services over time, is one of the primary reasons behind the interest rate increase on credit cards. As CNCB reported, the annual inflation rate increased in June 2025, with the consumer price index (CPI), a key measure of inflation, rising to 2.7% from May’s 2.4%.

Inflation and the Federal Reserve’s Benchmark Rate

The United States’ central bank, the Federal Reserve, also called “the Fed” for short, influences inflation with its benchmark interest rate. Also referred to as the “federal funds rate,” it’s the target interest rate at which banks borrow money, which they use to finance their credit-related products and services, including loans and credit cards.

When inflation rises, the Fed’s policy is usually to increase its target interest rate. As this makes borrowing more expensive for financial institutions, credit card issuers “pass” the costs on to borrowers.

Maintaining Wider Profit Margins

The most recent year in which inflation skyrocketed was 2022, when it increased to 9.1%, as Investopedia reports. The Fed had to raise its target interest rate multiple times that year, which resulted in credit card interest rates soaring as well.

With 2025’s inflation rates having decreased from 2022, why are credit card rates still high?

One reason is that the economy remains uncertain, prompting credit card issuers to postpone or be slow to pass on lower rates to consumers. As businesses, they’d rather maintain a wider profit margin. It can help compensate for potential losses in case more borrowers begin to miss payments again if the economy turns for the worse. 

Elevated Delinquency Rates

Inflation causes consumers’ purchasing power to decrease. Your $100, for instance, would get you fewer grocery items because their prices have gone up. If you were to buy the same quantity of necessities, you’d have to spend more.

An increase in prices and spending can make consumers rely more on their credit cards. The more people who depend on credit cards and the higher the amount of credit they take on, the more potential debtors who can become delinquent. Credit card delinquency is the failure to pay one’s card bills for at least 30 days after the due date.

Missed payments or even complete non-payment are bad for credit card issuers’ businesses, as they cause profit loss. Credit card companies often raise APRs to offset such risks.

Unfortunately, as depicted in this chart from the Federal Reserve Bank of St. Louis, U.S. credit card delinquency rates are rising.

How Can High Credit Card Interest Rates Affect You? 

Rising credit card interest rates won’t affect you, provided you pay your entire balance on or before the due date. Interest rates only apply to unpaid balances that carry over to the following billing statement.

If you don’t pay your entire credit card statement in full on or before the due date, you’ll pay more in interest fees due to rising rates. The bigger your unpaid balances every month, the more expensive your overall credit card debt will be.

The higher your credit card debt, the higher your monthly minimum due payment will be. Failure to make this minimum payment can result in more fees (e.g., late fees or penalties) and an adverse credit score impact. When your credit score falls too low, you’ll have difficulty getting new credit, and even if you do, you’ll likely face higher interest rates.

What Can You Do About High Credit Card Interest Rates? 

Proper debt management practices (e.g., paying your credit card bills in full and on time) can help you combat rising interest rates. As mentioned above, you won’t have to deal with interest fees as long as you pay your entire credit card balance in full on or before its due date.

Here are other practical financial management tips to combat rising credit card interest rates.

Avoid Making Just the Minimum Due Required

As much as possible, make credit card payments that exceed the minimum amount due. Even small extra payments can lower your balance faster. The smaller your balance, the more money you can save on interest, which you can then use to pay off more of your debts.

Explore Zero Percent Intro APR Cards

Look for credit card offers with a 0% APR introductory rate. You can then move the balance of one or more of your existing cards into this account. It can help you save on rising interest rates while you pay your debt down.

Reassess Your Needs vs. Wants

Living within your means can help you stay out of debt and help you save for your future. It entails ensuring your monthly living expenses are less than your income after taxes, which could mean cutting back on non-essentials, like luxury goods or dining out.

Instead of spending so much on items and activities that aren’t necessary for basic living, focus on cost-reducing, savings-enhancing tactics. Budgeting, home meal prep, and exploring smart ways to use home equity to build retirement savings can all help. 

Don’t Let Rising Credit Card Interest Rates Burden You

Inflation, profit margins, and elevated delinquency rates are all possible answers to the question, “Why are credit card interest rates so high?” The good news is that with proper debt and financial management practices, from paying balances in full to making extra payments and focusing on cost reduction strategies, you can avoid skyrocketing credit card rates from becoming too much of a burden. 

Discover more money-related tips and tricks like this by heading over to KTLA.com’s Financial segment! 

This article was contributed by Next Net and published on cdapress.com as part of our contributed content program. Contributed content provides perspectives from businesses and organizations. These contributions help support local journalism through financial support, ensuring we can continue delivering trusted local reporting to our readers.