The Average Credit Card User Pays $1,657 in Interest Every Year — Here Are 3 Ways to Avoid It

Americans have a total of $1.031 trillion in credit card debt, an all-time high. Plus, 56% of active credit card accounts have a balance, and the average credit card holder with an unpaid balance owed $7,279 at the end of 2022.

With the rapid rise in interest rates over the past 18 months or so, the cost of holding credit card debt has risen significantly. The average interest rate for credit cards accruing interest was 22.77% in the third quarter of 2023, and new credit cards have an even higher average initial APR. By using this overall average, we can infer that the average borrower with an average credit card balance is paying interest at a rate of about $1,657 per year.

That’s quite a bit of money that could be used in other (more productive) ways. You could use this money to save for your kids’ college or take a vacation, to name a couple examples. And you might be surprised at the impact that $1,657 in additional retirement savings every year could have over the long run.

With that in mind, it’s a smart financial goal to keep your interest expense to an absolute minimum. Aside from paying down your credit cards and keeping your balance at $0, here are three ways to reduce or even eliminate your credit card interest.

1. Look into a balance transfer

Credit card interest rates have spiked higher over the past couple of years, so you might be surprised to learn that 0% intro APR balance transfer offers are still as abundant as ever.

There are some excellent credit card products that specialize in balance transfers, and you might be able to find a 0% intro APR for a year or longer. For one example, the Wells Fargo Reflect® Card offers 0% intro APR balance transfers for 21 months. It’s also worth checking if your existing credit cards have any balance transfer offers currently available.

To be perfectly clear, a balance transfer is rarely free. You should expect to pay a transfer fee equal to 3% to 5% of the amount you’re transferring. (For the Wells Fargo Reflect® Card, it’s 5%; min: $5.) However, this can be a fair tradeoff if you can avoid a 20% (or higher) interest rate for over a year. Once you transfer your balance, every penny you pay will be applied to your principal balance and will help you get out of debt much faster.

2. Use a lower-interest credit card for purchases

There are some credit card products that offer below-average interest rates as a standard perk. These can be worth looking into if you may need to carry a credit card balance in the future or if you simply want the financial flexibility of an available credit line.

Credit unions can be a great source for credit cards with low standard interest rates. And there are some mainstream credit cards that offer below-average APRs to highly qualified customers.

3. Consider a personal loan

The personal loan industry has exploded in recent years, and there are more companies than ever originating unsecured personal loans.

While personal loan interest rates have generally risen over the past couple years just like credit card APRs have, it’s still possible to find personal loan interest rates that are significantly lower than what most credit cards charge.

Plus, personal loans have fixed interest rates and set monthly payments that can help you get out of debt in a timetable that works for you.

Which is best for you?

There’s no perfect answer, so it’s a smart idea to look into all three options and weigh the costs, pros, and cons of each. For example, if your credit score and existing debt is preventing you from getting a personal loan with a relatively low interest rate, but one of your unused credit cards is offering you a introductory 0% APR balance transfer, that could be the best way to go.

Whichever direction you choose, the ultimate goal is to not only eliminate interest, but pay down your credit card debt once and for all. Doing so will allow you to avoid paying thousands of dollars in interest year after year and direct that money to something more beneficial to your financial health instead.

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