Don't expect annual percentage rates to drop significantly.
Key Takeaways
- The Fed cut interest rates for the first time since March 2020. Originally expected to cut 0.25 of a percentage point, the Fed instead cut rates by 0.5.
- Unfortunately, one rate cut won't make much of a dent in consumers' credit card debt. People should continue paying their credit cards as usual.
- Consumers should keep an eye on future Fed meetings for additional rate cuts.
The finance world is abuzz with news from Wednesday's Federal Reserve meeting. For the first time since March 2020, the Fed cut interest rates. The federal funds rate is now 4.75% to 5% after being at a 23-year high of 5.25% to 5.5% since July 2023.
Originally expected to cut 0.25 of a percentage point, the Fed instead cut rates by 0.5. This is all well and good, but what does it mean for you and your credit card debt? I'm glad you asked.
What Credit Card Consumers Can Expect
Unfortunately, the answer is "not much." Consumers won't see a difference in annual percentage rates right away, though APRs could inch down in a few weeks. But even then, just one rate cut won't cause a huge dent. The average APR offered on a new credit card right now is 24.92%, so we'll use that as our example to lay out what a new interest rate means.
Let's say you have a credit card with a balance of $6,500 and an APR of 24.92%. Assuming you make monthly payments of $250, it will take 38 months to pay off your balance, and you'd pay $2,943 in interest.