Credit Card Debt Hits $7,886 per American as 23% Rates Keep Balances Growing

"Credit card debt has reached crisis levels, with the average American cardholder now owing $7,886. When combined with interest rates near 23%, this creates a situation where monthly interest charges consume most payments, making it nearly impossible to reduce the actual balance owed. The Federal Reserve cut rates multiple times throughout 2025, yet credit card holders haven't seen meaningful relief. The reason is simple: while the prime rate dropped to 6.75%, card issuers maintain substantial margins that keep total APRs near 23%."

"Credit cards use daily compounding, which means interest builds on itself every 24 hours rather than monthly. This mathematical reality transforms what looks like a manageable annual rate into a powerful wealth drain. A cardholder with $5,000 in debt faces roughly $95 in monthly interest charges before touching the principal balance. Card issuers design minimum payments to feel manageable, typically requiring just 1-3% of your balance each month."

"But this creates a dangerous trap: on a $5,000 balance, a $100 minimum payment might seem responsible, yet nearly all of it goes to interest rather than reducing what you owe. Without aggressive payments well above the minimum, balances can take years or decades to eliminate. The most important factor is whether you're making progress on your balance or just covering interest. Calculate your monthly interest charge by multiplying your balance by your APR, then dividing by 12."

Average credit card balances are around $7,886 while typical APRs remain near 23% because issuers keep large margins above the prime rate. Federal Reserve cuts have not substantially lowered card APRs. Daily compounding causes interest to accumulate every 24 hours, turning seemingly moderate annual rates into steep monthly costs; a $5,000 balance can incur roughly $95 in interest before reducing principal. Minimum payments of 1–3% mostly cover interest, prolonging payoff for years or decades. To make meaningful progress, payments must exceed the monthly interest charge; otherwise carrying a balance can cost thousands annually.

Read at 24/7 Wall St.