Americans shift to cheaper credit as card rates surge

Consumers are moving from high-interest credit cards into lower-rate options as card APRs rise. Banks, credit unions and fintech lenders report higher demand for personal loans, balance-transfer offers and home-equity borrowing to reduce monthly payments and interest costs.

Average credit card APRs climbed well above 20 percent for many cardholders over the past year after a series of Federal Reserve rate increases pushed the prime rate higher. Many cards carry variable rates tied to the prime benchmark, so interest charges on revolving balances rose quickly. Cardholders who carry balances month to month reported larger interest bills and higher minimum payments.

Common alternatives include fixed-rate personal loans that convert revolving debt into installment payments, balance-transfer cards with introductory 0 percent APR promotions, and home-equity lines of credit or loans that use property as collateral and typically have lower rates than unsecured cards. Credit unions often offer lower advertised rates and more flexible underwriting than major banks, attracting consumers who qualify for membership.

Each option has costs and limits. Balance-transfer offers usually include transfer fees that add about 3 percent to 5 percent of the moved balance and revert to higher APRs after the promotional period ends. Personal loans can reduce interest costs and provide a set payoff date but often require qualifying credit and may include origination fees. Home-equity borrowing can offer rates several percentage points below unsecured cards but places a home at risk if payments are missed and can involve closing costs. Some buy-now-pay-later plans are promoted for short-term needs but can generate fees and generally provide fewer consumer protections than traditional credit.

Lenders describe distinct borrower profiles for each solution. Consumers with good credit scores are more likely to secure single-digit or low-double-digit personal loan rates. Borrowers with weaker credit often receive offers that remain above 20 percent. Homeowners with substantial equity and steady income can access HELOCs or home-equity loans at rates below many unsecured card APRs. Some consumers use 0 percent balance-transfer windows combined with aggressive repayment plans for short-term interest relief.

Financial counselors and nonprofit agencies report increased requests for help refinancing credit card debt and negotiating with lenders. Debt-consolidation advisers emphasize checking all fees and calculating the total cost of a new loan versus continuing monthly card payments.

Underwriting tightened in parts of the market after recent rate increases, limiting access to some balance-transfer offers for higher-risk borrowers. At the same time, competition among banks and fintech firms has produced targeted consolidation loan products and promotional balance-transfer periods aimed at borrowers seeking lower-cost options.

Credit-card interest is largely variable and follows short-term benchmarks set by the Federal Reserve and reflected in the prime rate. When the Fed raised its policy rate in recent years, borrowing costs rose across mortgages, auto loans and cards. Issuers adjust APRs on new accounts and, for many cards, on existing balances, which has translated higher policy rates into faster-growing consumer interest expenses.

Counselors suggest that consumers compare total costs, fees and repayment schedules when evaluating alternatives.