At its most recent policy meeting, on Wednesday, January 29, the Fed left its key interest rate unchanged. That means the annual percentage rate (APR) on your credit card probably won’t get more expensive for now—and it also suggests the central bank sees the U.S. economy chugging along at a steady pace, not too hot and not too cold.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Federal Open Market Committee (FOMC) wrote in a statement after the most recent meeting. “While unemployment remains low and labor market conditions are solid, inflation continues to run ‘somewhat elevated,’ well above the Fed’s long-term goal of 2%.”

The outcome of the January 29 Fed meeting means stability for borrowers, but it also highlights the importance of understanding how interest rates are determined and what they mean for your credit card balances.

How the Fed affects your credit card rates

Credit card issuers don’t simply pull APRs out of thin air, despite what frustrated cardholders might think. Most APRs are tied to the prime rate, which moves in lockstep with the federal funds rate. Credit card issuers calculate your APR by adding a margin to the prime rate. 

Understanding this mechanism can help you anticipate potential changes to your credit card’s APR and make informed decisions about your financial strategy.

Here’s how it works. When the Fed adjusts the fed funds rate—it’s key benchmark for U.S. interest rates—banks adjust their prime rates accordingly, and those are averaged into the nationwide prime rate. When the prime rate changes, your credit card’s APR tends to adjust as well, but there’s no guarantee.

A CardRatings survey found that despite the Fed cutting interest rates twice in the fourth quarter of 2024, just over half of the credit cards studied lowered their rates in response. Jennifer Doss, executive editor at CardRatings.com, notes one reason for this: “Credit card companies are being cautious,” She says.  

“The Fed tends to cut rates when the economy is slowing, and when that happens, lending to consumers usually gets riskier,” says Doss. We certainly see that reflected in credit card defaults, which are at a 12-year high. 

It’s worth noting that while Fed policy decisions are a big factor in credit card APRs, they’re not the only one in play. Card issuers also consider market conditions, risk assessments, and competitive positioning when setting rates. 

Credit card interest rate trends

If your credit card payment feels more onerous than it did a few years ago, there’s a good reason for that. Just three years ago, the average credit card interest APR was a whopping 6.6% lower than it is now. 

This means if you are carrying a $10,000 balance on your card, you’ll pay an additional $660 in interest on that debt each year. High interest creates a snowball effect, making balances even harder to pay off. 

Greg McBride, CFA and chief financial analyst at Bankrate, notes that even with Fed rates well off their recent highs, credit cards are an expensive way to borrow money. 

“The average credit card rate is over 20% and with the Fed hitting the pause button on rate cuts, that rate isn’t going to come down much in the months ahead,” McBride told Fortune. 

Forget the Fed for a sec, here’s what you need to do

McBride has very simple advice for anyone who’s carrying a credit card balance. “Cardholders need to be aggressive about paying down the debt,” he says. “They can utilize 0% or other low rate balance transfer offers to accelerate your debt repayment efforts.” 

Balance transfer credit cards can give you a long runway to pay down your debt, but most charge an upfront fee, typically 3% to 5%. The charges , but at 21 months offers an industry-leading 0% APR intro period for balance transfers. 

One place to look for a balance transfer credit card is a credit union. Many credit unions are open for anyone to join and because they answer to customers, not corporate shareholders, rates are among the most competitive in the industry. 

For instance, PenFed lets anyone join and has a card that offers balance transfers for 12 months with a low 3% balance transfer fee.

Expect more of the same in 2025

Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, expresses skepticism that credit card interest rates will come down much in 2025. 

“While inflation concerns have significantly abated, they still remain,” she says.  “As a result, it's quite possible that there will be fewer rate cuts over the course of next year than anticipated only a few months ago.”

Ranieri adds that in addition to paying down your debt, you should be making sure your credit house is in order. “Consumers should continue to monitor their own credit scores and credit reports to make sure they are in the best possible position to act when rates do come down.” 

You can request a free copy of your credit report from the three main credit bureaus at annualcreditreport.com. Recent Consumer Financial Protection Bureau (CFPB) actions against Experian and Equifax support the importance of keeping an eye on your credit report to guard against errors and identity theft. 

By making sure your credit is in order, you’ll be in a position to get the best possible APR on your credit cards no matter which way the Fed makes rates move.