Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Your Raise Is Finally Beating Credit Card Interest Rates
Transcript
- Lucas: So the average hourly earnings in the private sector hit $37.60 in June. That's up from $37.51 in May, and it's the highest on record. Meanwhile, the average credit card APR — which had been climbing steadily for two years — actually ticked down last month. For the first time since 2022, wage growth is running ahead of credit card interest rate increases. Luna: Wait, so you're saying our raises are finally catching up to what the credit card companies are charging us? Lucas: Exactly. And it's a bigger deal than it sounds. Because for the past four years, your raise was getting eaten alive by higher rates on revolving debt. The average APR on new card offers peaked near 24.5 percent late last year. Now it's around 23.8 percent. Meanwhile, wage growth has been chugging along at roughly 4.2 percent year-over-year. Luna: So the gap is closing. But remind me — how much credit card debt are we actually carrying as a country? Lucas: As of April, total revolving credit — which is mostly credit cards — was about $1.35 trillion. That's up from about $1.2 trillion two years ago. So households are still leaning on plastic, but the cost of carrying that balance is finally becoming a little less punishing. Luna: And the average household paying interest — what's the typical monthly hit? Lucas: Roughly $150 in interest per month if you're carrying a $7,000 balance at 24 percent APR. That's about $1,800 a year. But if the APR drops a full percentage point — and wage growth keeps up — that frees up maybe $70 a year per household. Not life-changing, but it's moving in the right direction. Luna: Still, credit card rates are notoriously sticky. Why did they finally ease? Lucas: Good question. A lot of it ties back to the Fed's pivot. They held rates steady at their June meeting, and the market is pricing in a cut later this year. So banks started lowering their APRs slightly to stay competitive on new applications. Also, charge-off rates — the percentage of debt banks write off as uncollectible — have been rising. Banks are getting cautious. Luna: Right, because if people can't pay, banks lose money. So they'd rather lower rates a bit to keep more borrowers current. Lucas: Exactly. And this is where the jobs data comes in. The June payrolls number was just 57,000 new jobs — way below expectations. The unemployment rate ticked up to 4.2 percent. That's still low by historical standards, but the trend is cooling. If people start losing jobs or seeing hours cut, they're going to have a harder time paying down those card balances. Luna: So the wage gains we're seeing — are they real gains after inflation, or are they just nominal? Lucas: Real average hourly earnings — adjusted for inflation — were up about 1.1 percent year-over-year in May. So workers are gaining purchasing power, but barely. And core CPI is still running at 3.3 percent, so inflation isn't vanquished. But on the credit card front specifically, the trend is your friend. Luna: Let's talk about what this means for someone listening who carries a balance. Should they do anything differently? Lucas: I think the big takeaway is: if you have good credit, you should shop around for a lower rate. Many issuers are offering balance transfer deals with zero percent for 12 to 18 months. That's a window worth jumping through. And with wage growth still positive, you can actually make a dent in the principal if you redirect that raise toward debt. Luna: Yeah, that makes sense. And for people who don't have great credit — they're stuck with the higher APRs. But at least the trend is no longer getting worse. Lucas: Right. The worst of the rate shock is behind us. Now it's about how long this window lasts. The Fed's next move is critical. If they cut rates in September, we could see APRs come down another half point or more. If they hold, banks might keep rates elevated. But the key variable is really the labor market. If wage growth stays above 4 percent while inflation drifts lower, this is a genuine win for workers. Luna: And speaking of genuine wins — if walking through the economy with us has helped you make smarter money moves, you might want to support the show. It's listener-supported, no ads, and every little bit helps keep the lights on. Lucas: Yeah, folks can find us at buy me a coffee dot com slash fexingo. No pressure, but it makes a difference. Luna: Anyway, back to the credit card picture. One thing I find interesting is that the usage pattern is shifting. People are using cards more for everyday spending, not just emergencies. Lucas: You're right. The data from the New York Fed shows that about 40 percent of households now revolve credit card debt month to month. That's up from 35 percent pre-pandemic. So the stakes are higher for more people. The fact that wage growth is finally outpacing APR increases is a welcome shift, but it's fragile. Luna: Fragile how? Lucas: Because one bad quarter of inflation or a surprise rate hike could reverse it. Also, the wage growth is concentrated in lower-paying industries. Leisure and hospitality wages are up 6 percent year-over-year, but that's partly because they were so low to begin with. In high-paying sectors like tech, wage growth is more like 3 percent. So the averages can be misleading. Luna: That's a good point. So the person who got a big raise at a restaurant might be able to pay down their card faster, but the software engineer might be treading water. Lucas: Exactly. And the software engineer probably has a higher balance to begin with. The median credit card debt among those who carry a balance is around $3,000. But the average is higher because some folks are carrying $15,000 or more. So the benefit of lower rates is uneven. Luna: What about the broader economy — does this trend help consumer spending? Lucas: It should. If people are paying less in interest, they have more to spend elsewhere. But consumer confidence has been shaky. The June reading from the Conference Board was down a bit. And with the labor market cooling, people might choose to save rather than spend. Still, on the margin, lower credit card rates are a tailwind for retail and services. Luna: So if I'm a listener with a card balance, what's the one concrete thing I should do this week? Lucas: Call your card issuer and ask for a lower rate. Seriously. A 2019 study found that about 70 percent of people who asked got a reduction. And now with competition heating up, you have leverage. Even a one-point drop saves you real money. Then set up automatic payments for more than the minimum — aim to pay off the statement balance within six months. Luna: And if they say no? Lucas: Then look at a balance transfer card. NerdWallet and Bankrate have good comparisons. Just watch out for the balance transfer fee — usually 3 to 5 percent. But if you can pay off the balance within the intro period, it's still a net win. Luna: Alright, so to recap: wages are up, credit card rates are finally easing, and the window is open but not forever. Action item: negotiate or transfer. Lucas: That's the playbook. And we'll keep tracking the data to see if this trend holds into the fall. Luna: Sounds good. Thanks Lucas. Lucas: Thanks Luna. See you next time.