Millions of U.S. consumers are unaware of what it costs them to carry card balances
Millions of U.S. consumers are unaware of what it’s costing them to carry balances on their credit cards, according to a new CreditCards.com survey.
Our online poll of 2,315 U.S. adults, including 1,681who have at least one personal credit card, revealed 48 percent of balance-carrying cardholders are either unsure or unaware of their cards’ APRs. That includes one-third of card balance revolvers who said they flat-out didn’t know the interest rates on any of their cards.
An extrapolation based on the U.S. adult population reveals that 59 million people have little or no idea of how much interest they’re paying on their card debt.
“I’m not surprised, but I am concerned,” said Ed Mierzwinski, senior director at the U.S. Public Interest Research Group (PIRG). “The problem is if you don’t know what you’re paying for money, you’re probably paying more than you think.”
Additionally, one quarter of all cardholders said they’ve carried balances on at least three different cards within the past six months. Here’s what else our survey found about credit card users and their APR awareness:
- 2 in 5 are on top of their cards’ rates. Thirty-nine percent of balance-carrying cardholders said they know all their cards’ interest rates.
- Women are less sure about their APRs than men. Women (53 percent) were significantly more likely than men (43 percent) to say they think they know or they don’t know all their cards’ interest rates.
- Lower-income cardholders are less aware. Respondents who earn less than $40,000 per year were significantly more likely than consumers at all other income levels to say they don’t know any of their cards’ APRs.
- Gen-Xers are juggling the most card balances. Cardholders aged 38-53 carry balances on an average of two cards, compared to 1.8 for millennials (aged 18-37), 1.6 for baby boomers (aged 54-72) and 1.1 for members of the silent generation (73 and over).
- Older is wiser when it comes to credit use. Consumers aged 55 and over were significantly more likely than all other adults to say they don’t carry balances on any of their cards.
The online survey of 2,315 adults was conducted April 18-19, 2018. See survey methodology
Interest rates – including card APRs – are rising
Ignoring your credit cards’ interest rates can put you in financial peril, particularly if you don’t pay your balances in full each month. And now is an especially problematic time to be oblivious to card APRs, which are at an all-time high and likely to keep rising over the next couple of years.
The Federal Reserve has raised its benchmark federal funds rate by a quarter of a percentage point six times since December 2015. Banks respond to federal funds rate hikes by raising the prime rate, to which variable card APRs are pegged. The federal funds rate now stands at a range of 1.50 to 1.75 percent, but the median rate is projected to reach 2.1 percent by the end of this year and 2.9 percent by 2019.
Meanwhile, credit card APRs have risen to an all-time average high of 16.71 percent, according to the CreditCards.com Weekly Credit Card Rate Report. And a quarter-point APR hike costs a consumer with an average balance of $5,644 an extra $14 in interest per year. If a balance of that amount is paid off making only minimum monthly payments – which would take 19 years – the total interest charged increases by $109 due to the rate hike.
Avoiding APRs: A habit borne of complacency, or anxiety?
Staying on top of your cards’ rates isn’t hard. Your issuer is required by federal law to disclose all APRs (including the APR applied to purchases, balance transfers, cash advances and penalty rates) once approved. These can be found in your card’s terms and conditions document inside what’s referred to as the Schumer Box.
You can also check a card’s terms and conditions before you apply, but in many cases the issuer provides a range of purchase APRs instead of a specific one. You won’t know what your APR will be until you are approved.
You can then keep track of any rate changes by reviewing your billing statement each month. But Mierzwinski of PIRG said many consumers may be neglecting to view their statements, especially when using autopay to ensure on-time payments. If your bills are being paid automatically, monthly statements can get drowned out by life’s myriad priorities.
“The credit card companies take advantage of the fact that everyone is too busy,” he said.
Other consumers may be mentally blocking out their debts – and thus their APRs – if they can’t afford to pay the balance back in a reasonable amount of time.
“When people are in debt, they get anxious, and when you get anxious you tend to avoid whatever is making you anxious,” said Mary Gresham, a financial psychologist based in Atlanta. “If you’re anxious about elevators, you’re going to avoid elevators.”
But Gresham said she typically challenges her clients to confront their fears of looking too deeply into their finances. Peering at a billing statement on an account you’ve been neglecting to monitor can actually have a calming effect.
“People don’t realize that avoidance increases anxiety,” Gresham said. “In the short term, you feel better if you just put it aside. But in the long term, you know in the back of your mind that you’re not dealing with it, and then you get a more generalized anxiety that’s not always tied to your finances.”
Don’t carry multiple balances without a budget
Not knowing your cards’ APRs can also make it nearly impossible to develop a household budget. Planning your monthly card spending becomes a pointless exercise if you don’t know how much interest you’ll be charged.
It gets even more difficult to factor in your interest charges when carrying balances on multiple cards. In our survey, 24 percent of cardholders said they had carried balances on at least three cards within the past six months.
There’s nothing inherently wrong with using a few different credit cards on a regular basis. It can be an effective way to categorize and track your spending and maximize your rewards earnings. But if you rack up debt on several cards with no repayment strategy in mind, you could get swamped with interest charges and damage your credit.
“Holding multiple cards comes with risks, including overspending, a higher likelihood of accruing debt and a poor credit utilization ratio,” said Rachel Kampersal, a spokeswoman for American Consumer Credit Counseling. “When holding multiple cards, it’s important to keep balances low to avoid damage to your credit score.”
Save money by reviewing your billing statements
The best advice for maintaining good credit is to pay all your balances in full on time each month. But if you must revolve a balance from time to time, it’s critical that you know how much interest you will be charged. After all, a credit limit is not a pile of free money – any portion that you use must be considered a loan.
There’s no reason to fear looking up your card’s APR, and the minimal investment of time required to do so can pay off – literally.
“You can save a lot of money if you look at your statements for one minute a month,” Mierzwinski said.
CreditCards.com commissioned YouGov Plc to conduct interviews with 2,315 adults living in the United States. The survey was conducted online April 18-19, 2018. Statistical results are weighted to correct known demographic differences between the sample and the U.S. population.
See related: Poll: It’s easy to get rid of credit card fees if you ask, 6 credit card fees you might not know about, Guide to rising credit card interest rates