PhotoThe average rate on credit card balances, as measured by a credit card comparison site, has hit an 18-year high, meaning consumers carrying balances are paying more in interest.

But a bright spot in the CompareCards.com analysis shows consumers paid off a big chunk of their credit card balances, perhaps applying some of their tax refunds to their debt.

Despite the fact that the interest rate on everything from mortgages to car loans remains near historic lows, CompareCards puts the average credit card interest rate at 15.3 percent, an 18-year high. A consumer with a $10,000 credit card balance would pay an average of more than $1,500 in interest if they paid nothing on the principal.

Credit cards are unsecured loans, which is why their rates are always higher. They are also closely tied to the Federal Reserve's discount rate. As the Fed begins to normalize that rate – which was held at near zero percent for years – it puts upward pressure on credit card rates.

Credit card rates are also higher now than they were two decades ago, relative to the prime rate – the rate banks charge their best customers. Eighteen years ago, when the average credit card rate was over 15 percent, the prime rate was more than nine percent.

Today, the prime rate is just 4.75 percent, meaning the average credit card rate is more than 10 percentage points higher.

Paying off debt

Between January and March, consumers appeared to make progress in paying down their credit card balances. The CompareCards analysis shows revolving debt, made up primarily of credit card balances, dropped by $52.7 billion. It was the largest paydown since 2010, at the end of the Great Recession.

March is traditionally the lowest month in the year for credit card balances. If this year follows the usual pattern, balances will begin to rise throughout the year. As we reported last week, LendingTree projects consumers will owe a total of $4 trillion by the end of the year.

Rising debt is often a sign of an improving economy. With more people employed, more consumers may be willing to make major purchases and finance them with credit cards.

People are also earning more money, but the CompareCards analysis shows consumers are spending money at a faster rate than they are earning it. Spending rose in March for the first time in two months.


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