Credit cards get more expensive amid rising rates

[UNITED STATES] As inflation continues to pressurize household budgets, consumers are facing another financial burden: the rising cost of using credit cards. With interest rates climbing and several credit card issuers introducing new fees, millions of cardholders may soon find themselves paying more for credit card services. Here's a closer look at the factors contributing to these increases and what they mean for everyday consumers.

Rising Interest Rates Affect Credit Card Borrowers

Over the past year, the Federal Reserve has implemented multiple interest rate hikes in an effort to combat rising inflation. These increases, while aimed at cooling down the economy, have had a direct impact on credit card interest rates. As of April 2025, the average credit card APR (annual percentage rate) has reached a record high of 22.5%, according to data from the Federal Reserve. For many cardholders, this means paying significantly more for balances carried from month to month.

Credit cards, which are typically used for short-term borrowing, often come with high interest rates, and these rate hikes make it even more expensive for consumers to carry balances. If you’re currently carrying a credit card balance, you may soon see your minimum payments rise, as the interest charges on your balance increase.

New Fees Adding Up

In addition to higher interest rates, many credit card issuers are also implementing new or higher fees. While some of these changes are designed to boost revenue for banks, others reflect the increased cost of providing credit card services in the current economic environment.

Some of the most common fees being introduced or raised include:

Annual Fees: Several credit card companies are increasing annual fees for their premium rewards cards. These fees can range from $95 to upwards of $500 for cards that offer luxury perks like airport lounge access, travel insurance, and higher reward points.

Late Payment Fees: Late payment penalties have also seen a rise. While the average late fee is typically $29, some issuers are now charging as much as $40 for late payments.

Cash Advance Fees: If you rely on credit cards for cash advances, you may notice these fees becoming more expensive. In some cases, banks have raised the percentage charged on cash advances or added extra fees for withdrawing money.

Impact on Consumers

The most significant impact of these changes is likely to be felt by those who carry balances on their credit cards. With interest rates and fees rising, the cost of carrying debt could skyrocket, particularly for those with lower credit scores. Credit card debt, which has been rising steadily in the U.S. for the past few years, now exceeds $1 trillion, according to the latest figures from the Federal Reserve.

For cardholders who don’t carry a balance, the impact may be less severe, though rising fees could still affect the overall value of credit card rewards programs. High annual fees and increased costs associated with earning rewards could make some cards less attractive for frequent users.

Why Are Credit Cards Getting More Expensive?

There are a few key reasons why credit cards are becoming more expensive:

Higher Federal Reserve Interest Rates: The Fed’s monetary policy directly influences credit card rates. With ongoing hikes in the federal funds rate, credit card issuers have had to raise their interest rates to cover higher borrowing costs.

Increased Operational Costs for Banks: As inflation affects businesses across industries, financial institutions are also seeing higher costs in maintaining their credit card programs. These increased operational expenses are often passed on to consumers in the form of higher fees and interest rates.

Risk Management: Credit card companies are adjusting their risk models to account for economic uncertainty. With the possibility of a recession or a slowdown in economic growth, credit card companies are charging more to offset the potential risk of defaults or late payments.

Competition and Profitability: While the number of credit card issuers remains high, the increasing financial strain on banks has led to a push for higher fees and interest rates as a way to maintain profitability in a more competitive environment.

How Can Consumers Navigate the Rising Costs?

While credit cards are becoming more expensive, there are still strategies consumers can use to mitigate the impact of these rising costs:

Pay Balances in Full: One of the best ways to avoid high interest charges is to pay your credit card balance in full each month. This avoids interest altogether and allows you to take advantage of rewards without the extra costs.

Look for Low-Interest Cards: Some credit cards offer lower interest rates, especially for consumers with good credit. If you are concerned about rising rates, it may be worth researching cards with introductory 0% APR offers or low ongoing APR rates.

Consider No-Annual-Fee Cards: For consumers who use their credit cards primarily for basic purchases and don’t need premium rewards, switching to a card with no annual fee could help save money.

Track Your Spending: By staying on top of your credit card purchases, you can avoid late fees and excessive interest charges. Setting up payment reminders or automatic payments can help ensure you never miss a due date.

Review Your Credit Card Terms: If your current credit card issuer has increased fees or rates, it’s worth shopping around for other options. Credit card offers are constantly changing, and switching to a card that better suits your needs could save you money in the long run.

Looking Ahead: Will Costs Continue to Rise?

With inflation still a concern and the Fed signaling that interest rates may remain high for the foreseeable future, credit cards could continue to get more expensive. However, as competition in the credit card industry remains fierce, issuers may introduce new perks or incentives to retain customers.

For now, the key takeaway for consumers is to stay informed and take steps to manage credit card debt effectively. By being proactive about credit card use and choosing the right cards for your financial situation, you can avoid some of the financial strain that comes with rising interest rates and fees.

Credit cards are becoming more expensive due to rising interest rates and increased fees. Consumers who carry balances will feel the impact most, as high interest rates can make debt more costly. However, there are still ways to minimize costs, such as paying off balances in full, researching cards with low rates, and avoiding unnecessary fees. By staying vigilant and adjusting your financial habits, you can reduce the burden of higher credit card costs in the months to come.