Why the Latest Inflation Data Is Great News for Credit Card Borrowers

In February, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services, rose 6% on an annual basis. That's a much lower reading than what we saw in mid-2022, when inflation came in at over 9%.

Meanwhile, in March, the CPI dropped even more with regard to annual inflation. On a year-over-year basis, the index was up 5%. That's a notable drop from February's reading. And it could spell relief for consumers across the board. 

Credit card borrowers, however, might really benefit from the latest CPI reading. Here's why.

Cooling inflation might calm the Fed down

The Federal Reserve has been on a mission to cool inflation. Bringing annual inflation closer to the 2% mark is thought to lend to a more stable economy -- or so says the central bank itself.

To bring inflation down, the Fed has been raising interest rates since early 2022. And it's already raised interest rates twice this year.  

But if the Fed winds up happy with March's CPI reading, it may decide not to raise interest rates at its next meeting in early May. And if interest rates stay where they are, credit card borrowers with existing balances may not see their costs rise so drastically in the near term.

See, unlike personal loans and home equity loans, which allow you to lock in a fixed interest rate on your debt, credit cards tend to come with variable interest. You could end up on the hook for higher payments -- and struggle as a result. Meanwhile, Fed rate hikes have the potential to make credit card debt more expensive. So if the central bank keeps rates where they are, credit card borrowers can benefit.

How to shed your credit card debt

Credit card debt can be extremely costly -- not only because the interest rate on your debt can rise, but because credit cards tend to charge a large amount of interest to begin with. Plus, too much credit card debt can actually damage your credit score. This holds true even if you're able to make your minimum payments every single month. And the lower your credit score, the harder it becomes to borrow money affordably when you need to.

If you're eager to get out of credit card debt, try getting on a budget and cutting expenses to free up cash. You can also try getting a second job to drum up the money to pay your debt off. That may or may not be an easier route to take than slashing your spending, since inflation has been driving expenses upward -- because while we did see inflation cool in March, it's still higher than normal.

Of course, another helpful move might be to transfer your existing credit card balances over to a new card with a 0% introductory APR. That way, you'll get a limited reprieve from racking up interest as you work your hardest to chip away at your debt.

We don't know how the Fed is going to react to the latest CPI reading. But even if the central bank pauses its interest rate hikes for the time being, it's still a good idea to do what you can to shake your credit card debt -- before you end up spending a lot of money on interest that you'd rather spend in other ways.