Interest rates on store credit cards are rising, and the new numbers may surprise you.
The Macy’s has just sent letters to its cardholders announcing that the interest rate on the Macy’s card is jumping to 34.49%. Industry experts told CBS that the increase is part of a national trend.
Retail stores already have the highest rates, and these rates have been steadily rising, reflecting the increase in interest rates from the American Central Bank (Fed).
Credit card rates have reached record levels in recent months. The national average has jumped about four and a half points since the Fed began raising rates. The average increase is just over 20%.
In addition to the Federal Reserve’s rate hikes, retailers are also raising rates to offset pressure from the Consumer Financial Protection Bureau to reduce late fees.
Currently, the average late fee on a credit card is $32, and the CFPB is trying to reduce it to eight dollars. In fact, this maximum late fee was supposed to go into effect in May, but a federal judge temporarily struck down the measure, and the case is still progressing through the courts. Store credit cards rely more on late fees than general-use cards, so many store card issuers have started using other levers to compensate for what could be a drop in revenue.
How high could your debt get?
If you have a balance of $1,000 on your Macy’s card, are being charged 34% interest, and make only the minimum payments, it will take you 58 months, almost 5 years, to pay off the debt and you would pay a total of $1,047 in interest. So, in other words, you would more than double what you initially spent.
Therefore, be very careful with the super promotions and discounts offered by retailers when you use the store card. In the end, you may end up losing.
Source: CBS