(The Hill) — Americans with credit card debt are caught in the crossfire of the Federal Reserve’s battle to bring down inflation.

The average annual percentage rate (APR) for credit cards hit 22.39 percent during the second quarter of 2023, up 3.5 percentage points from the same period last year, according to a new study by WalletHub.

“The current average credit card APR is the highest it’s ever been in the past two decades due to the recent Fed rate hikes,” WalletHub analyst Jill Gonzalez told The Hill.

Gonzalez anticipates credit card APR will increase further as a result of the Fed’s decision to raise interest rates again last week.

The Fed has hiked interest rates 11 times since March 2022, raising its baseline interest rate last week to a 22-year high. Fed rate hikes are meant to slow the economy and reduce inflation by making it more expensive to borrow and owe money.

While rates on some loans — such as mortgages — are only influenced by Fed hikes, credit card companies usually move rates in lockstep with the Fed.

Those higher rates are now deepening the debts many Americans are facing.

Caitlin Hogan, a 32-year-old case manager in central Kansas, told The Hill she had to put some unexpected expenses on one of her credit cards and is focused on paying off another one.

“I do not want to slip down the very slippery slope!” Hogan wrote.

Hogan’s plan is to put a little extra money towards that balance, but said “it’s just gonna get paid when it gets paid.”

Credit card debt on the rise

The national credit card balance is around $1 trillion, more cardholders are carrying a balance than ever before, and the average household carries $10,000 in credit card debt.

Riley Bookout, a graduate student at Texas A&M University, told The Hill he’s more cautious about what he puts on his credit card.

“If I were to miss a payment — and I don’t make a ton of money — it could hurt,” Bookout said.

“I think it’s concerning that we’re having to raise the interest rate at all anymore,” he added. “From the outside, it feels like the economy’s doing rather well.”

Middle and low-income families were hardest hit by high inflation that made it difficult to afford basic needs including food, gas and housing, Gonzalez said. While inflation is far lower now than it was last year, the nation’s total credit card debt lays bare “the almost devastating effects of these increases.”

‘A long way to gobefore rates come down

Inflation has plummeted from its peak at 9 percent year-over-year in June 2022 to 3 percent in June 2023, but Fed Chair Jerome Powell warned last week inflation has a “long way to go” before it falls to the Fed’s 2 percent inflation target.

Powell said the Fed may decide to raise interest rates again in September if inflation does not appear to be in check, and will likely keep rates high until it is quashed for good.

“Inflation has proved repeatedly has proved stronger than we and other forecasters have expected and at some point that may change. We have to be ready to follow the data,” he said.

Gonzalez expects more hikes before the end of the year as the Fed works to cool the economy, and she anticipates credit card debt and the unemployment rate will continue to climb over the next few months.

“There’s still uncertainty about whether we’ll face a recession in the second half of the year or not, but it’s important for consumers to start saving up regardless,” Gonzalez said.

How to manage credit card debt

While it can be difficult to save when the interest keeps piling up, Candace Lee, vice president and client advisor at Glassman Wealth Services, said there are several options for tackling higher credit card debt.

“Anytime there’s excess cash that you have in your bank account, just focus on paying down the one that has the highest interest rate,” Lee said. “You’re basically just placing money in interest rate fees every time you kind of just leave that one to build.”

Cardholders may also focus on paying off the credit card with the highest balance, or a smaller balance that’s easy to pay off “so you kind of feel like you’re making progress.”

Lee does not usually recommend her clients to refinance their credit card debt. She said there may be fine print that’s missed that could make it even harder to pay down their debt.

If possible, it’s important to make the minimum payments on credit card — and to make them on time — to avoid hits to your credit score and late fees.

Lee says in the immediate term, she tries to be as encouraging as she can when working with clients who are struggling with credit card debt.

“Some people can’t help having credit card debt just based on their income,” she said.

Lee added that getting into the habit of evaluating your accounts, expenses and income as you have extra cash to pay off credit card debt “is just a smart strategy.”

Tackling late fees

The Consumer Financial Protection Bureau (CFPB) proposed a new rule in February to cap credit card late fees it estimates cost Americans around $12 billion each year. 

If the proposed rule is finalized, late fees would drop from as much as $41 per violation to $8, among other provisions. 

The CFPB estimates this rule would reduce late fees by as much as $9 billion annually, but banks and credit unions are lining up against the proposal.

In a May letter to the CFPB, the American Bankers Association, the Consumer Bankers Association and the National Association of Federally-Insured Credit Unions warned credit cards could get more expensive and difficult to get if the rule were implemented. 

The associations also argued late fees are an “important incentive” to encourage on-time payments, minimize the risk of default and support good credit.