• Credit card interest rates, also known as APY, are at all-time highs.
• The Federal Reserve has raised borrowing costs to their highest level in over two decades to tame pandemic-era inflation.
• Making just the minimum monthly payment on a credit card is financially "brutal" for consumers, one expert said.

Credit cards are practically charging "loan shark interest rates" after hitting historic highs this year, said Barry Glassman, a certified financial planner and member of CNBC's Advisor Council.

A credit card's interest rate is the price consumers pay to borrow money. It's most commonly expressed as a yearly rate — the annual percentage rate, or APR.  

The average interest rate for all credit card accounts hit 20.68% in May, the highest on record, according to most recent Federal Reserve data.

Ted Rossman, industry analyst for CreditCards.com, doesn't think rates have gotten nearly bad enough to be in "loan shark" territory. Some payday loans charge 400%, 500% or even more than 600%, for example, he said.

"But credit cards do charge the highest interest rates of any mainstream consumer debt [by far]," he wrote in an e-mail. "We're talking 3x, 4x, 5x, maybe even higher compared with your typical mortgage, car loan or student loan. This is why it's so important to prioritize credit card debt payoff."

High rates 'can have a real devastating snowball effect'

Consumer borrowing costs have increased sharply since early 2022 as the Federal Reserve began raising its benchmark interest rate to tame inflation.

Cardholders who pay their balances in full and on time don't amass interest. But banks do charge interest when consumers carry a balance from month to month. Such accounts had a 22.16% average interest rate in May, also a record high, according to Fed data.

Since these are averages, many consumers are paying higher rates that can extend at least into the mid-20s, said Glassman, founder and president of Glassman Wealth Services, based in Vienna, Virginia, and North Bethesda, Maryland.

Rates of more than 20% "can have a real devastating snowball effect and consumers may never catch up," Glassman said.

In fact, 37 out of 100 cards tracked by CreditCards.com currently cap their APRs at 29.99% or more — a record share.

Total credit card debt has surpassed $1 trillion

Americans leaned more on credit cards to pay their bills as pandemic-era inflation raised prices on food, housing and other consumer items at the fastest pace in four decades.

Total credit card debt topped $1 trillion in the second quarter of 2023 for the first time ever.

There are 70 million more credit card accounts open now than in 2019, Federal Reserve Bank of New York economists wrote in August. Further, 69% of Americans had a credit card account in the second quarter, up from 65% at the end of 2019 and 59% at the end of 2013, they said.

"Credit cards are the most prevalent form of household debt and continue to become even more widespread," the economists wrote.

The good news, for now, is that delinquency rates among cardholders seem to have stabilized around pre-pandemic levels, even in lower-income areas, according to the Fed economists.

"American consumers have so far withstood the economic difficulties of the pandemic and post-pandemic periods with resilience," the economists said. "However, rising balances may present challenges for some borrowers."

About half of cardholders carry debt from month to month, and therefore amass interest, Rossman said. Making just the minimum monthly card payment is financially "brutal," he said.

Consider that the average credit card balance is $5,947, according to TransUnion. Making the minimum payment at current interest rates means a borrower will be in debt for 211 months and owe $8,811 in interest, Rossman said. (His analysis used a 20.71% interest rate cited by Bankrate as of Sept. 13.)

The Fed hasn't broken much with high rates — yet

The Fed's sharp increase in its benchmark interest rate has pushed up borrowing costs across many types of debt like mortgages and consumer loans Glassman said.

"Whenever the Fed has raised interest rates as they have, something usually tips or fails," he said.

Yet, aside from a few bank failures earlier this year — like those of Silicon Valley Bank and Signature Bank — the U.S. economy hasn't seen "anything really break," Glassman said.

"We have seen some bank failures and maybe that was it," he added. "I'm not so convinced that that's the only downside or devastating impact of much higher interest rates that we've seen."

Aside from the financial challenge higher credit card balances pose for consumers, a resumption of federal student loan payments in October — after a pause of more than three years — will also stress households, Glassman said.

It will amount to "an immediate pay cut" for borrowers, he said. Borrowers owe a collective $1.7 trillion in student debt.

In the past, borrowers may have been able to take helpful steps like refinance their loans at a lower interest rate, but that safety valve isn't available any longer, at least while interest rates remain at their highest level in 22 years, Glassman said.

"This dynamic over the next year-plus is going to be fascinating and I'm not exactly sure how it plays out," he said.