Credit cards are among the most profitable financial instruments for banks. It’s a super deal for banks: They lend you money at double-digit rates from money they obtain for single digits.
Average credit card rates are more than 20% now, according the Consumer Financial Protection Bureau (CFPB). Despite the high finance charges, credit card companies were emboldened to raise their “merchant” fees recently, which is what they charge retailers for transactions.
Not surprisingly, credit card companies are projected to make record profits, which boosted their stock prices. The holiday season will only bolster their strong results this year.
The previous year also produced a windfall for credit-card issuers, according to the CFPB. “In 2022, credit card companies charged consumers more than $105 billion in interest and more than $25 billion in fees. Total outstanding credit card debt eclipsed $1 trillion for the first time since the CFPB began collecting this data.”
While banks are basking in profits, millions of consumers “are carrying balances month to month, with many falling deeper into debt over time, while credit card company profits remain significantly above pre-pandemic levels,” the CFPB added.
“Given the trends for the 175 million Americans with credit cards, the CFPB estimates that outstanding credit card debt may continue to set records,” the agency stated recently.
How can you cut credit card fees? There are three quick ways you can save on credit card interest:
1) Pay off your monthly balance within the grace period.
2) Don’t use a credit card. Pay with cash, checks or debit cards. Spend within your means and only use cards for regular expenses you can cover with monthly income.
3) Shop around for a lower-cost card and pay within the grace period.
The CFPB is challenging high rates and reviewing a new rule that may lower excessive fees. In the interim, also check out their credit card database.