Will credit card interest rates finally drop this September?

If you've swiped your credit card lately, you've probably felt the sting when the bill arrived. The average APR on credit cards has climbed to nearly 22%, after all, one of the highest levels borrowers have ever faced. For cardholders who are juggling balances from month to month, that type of rate (or higher) means a significant portion of each payment is being eaten up by compounding interest, leaving less room in the budget for necessities.

Meanwhile, credit card debt has hit record levels nationwide. According to the latest Federal Reserve data, Americans now owe more than $1.2 trillion on their credit cards, and the average cardholder owes just under $8,000 on their balances. Credit card payment delinquencies have also been climbing as more people struggle to fit their necessary expenses and their debt payments into their budgets, especially as sticky inflation continues to push prices up. 

Against this backdrop, many eyes are on the Federal Reserve's next meeting in mid-September. With markets betting on the possibility of the year's first interest rate cut, it makes sense to ask if that shift will finally translate into lower credit card rates.

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Will credit card rates finally drop this September?

The short answer to that question is no, credit card rates will probably not fall anytime soon. Here's why:

Fed cuts take time to filter through

Most credit cards have variable APRs that are tied to the prime rate, which in turn moves with the Fed funds rate. And, when the Fed hikes, issuers tend to raise card rates almost immediately. But when the Fed cuts rates, the adjustments made by card issuers tend to be slower and less generous. 

In past cycles, for example, many cardholders saw their rates edge lower very gradually, and rarely by the full amount of the Fed's move. So even if policymakers trim rates by a quarter point this September, any relief that's passed on to cardholders will likely be negligible and may take months or longer to show up on your bill.

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Issuers factor in more than Fed policy

Credit card companies price their products to balance risk and profit, and right now, risk is high. Delinquencies on credit cards have been climbing steadily, which is a clear sign that a lot of borrowers are struggling to keep up with their payments in today's tough economic landscape. So, card issuers are unlikely to drop rates, considering how risky it is to lend money right now.

And, while inflation is cooler overall compared to recent highs, today's inflation rate remains above the Fed's target, which is also keeping lenders cautious. As a result, issuers are more likely to hold their APRs higher than what Fed policy alone would suggest to protect themselves against the potential losses that can occur in this economic environment.

Card APRs are structurally high right now

The median APR across all cards is currently just under 22%. In late 2019, though, just prior to the start of the pandemic, the average credit card hovered closer to 15% — and card rates remained close to that 15% level throughout 2020 and 2021, even as the Fed cut rates drastically to try and stimulate the economy. In other words, today's high rates aren't just the result of a shifting Fed policy. They reflect broader trends in the credit market that may not unwind quickly.

How to get a lower credit card rate now

Instead of waiting for the Fed or your card issuer to come to the rescue, consider these strategies to cut your credit card rates and your interest costs today:

• Call and negotiate: This strategy sounds simple, but it works. If your credit score has improved since you opened your account or you've been a loyal customer, your issuer may be willing to shave a few points off your rate.
• Use a balance transfer: If your credit is solid, shop around for a balance transfer card with a 0% promotional interest rate. These offers typically result in 12 to 21 months of no interest, giving you a window to aggressively pay down your balance. Just be sure to factor in transfer fees and have a payoff plan before the promotion ends.
• Consider a debt management plan: Credit counseling agencies can help consolidate your debt into a structured repayment plan while negotiating with your card issuers to try and lower your card rates and fees. These plans can cut interest to single digits, which is well below today's averages.
• Look into a personal loan: If you qualify, a fixed-rate personal loan may offer a cheaper way to consolidate your high-rate card balances. While rates on these loans vary, they're generally a lot lower than the typical card APR, and the fixed term provides a clear payoff timeline.

The bottom line

A Fed cut in September might grab headlines, but it likely won't translate to lower credit card rates — not immediately, anyway. Credit card rates are more likely to remain stubbornly high and issuers aren't quick to pass along savings, even when borrowing costs fall elsewhere in the economy.

That doesn't mean you're powerless, though. By negotiating directly, transferring balances or exploring other strategies, you can take control of your interest costs right now. So, instead of waiting on the Fed to act, the smartest move may be making other changes today to ease the burden of your credit card debt.