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The stunning Fed interest rate cut of 75 basis points yesterday is very good news for credit cardholders as the prime rate is being pushed down to 5.25%. With a median revolving credit card balance of about $6600 and most credit card rates pegged to the prime rate, the average household will save about $50 over the next twelve months in interest costs due to the rate decision. Since dropping from 8.25% in September, the Fed's action will reduce credit card interest costs by more than $15 billion over the next year. Considering all the rate cuts since last summer, a family with total revolving credit card balances of $6600 will realize a savings of about $200 per year while those carry balances around $10,000 will save around $300 per year. Americans owed about $775 billion on general purpose credit cards at year end 2007. Approximately 87% of all major credit cards carry variable interest rates. Over the past year the average variable rate credit card has dropped from 16.59% to 15.49%.
