The Fed Cut Rates in December: Will Your Credit Card Get Less Expensive?

You may have heard that last December, the Federal Reserve lowered its benchmark interest rate—the third such rate cut to happen in 2025. That rate cut is likely to impact your credit cards. 

Let's explore the relationship between Fed rate decisions and consumer debt, including credit cards, to see what this recent move might mean for you.

What Does It Mean for the Fed to Cut Rates?

When we talk about the Fed’s rate cuts, we’re referring to the federal funds rate, also known as the Fed's benchmark interest rate. The federal funds rate is the interest rate banks charge each other for overnight loans. The federal funds rate also affects the prime rate, which is the basis for many consumer borrowing rates.

The Fed does not directly set interest rates for credit cards, personal loans, or other types of consumer debt products. Ultimately, the Fed can’t tell banks what to charge customers for loans, nor can it tell credit card companies how much interest to charge.

Rather, the Fed's rate cuts tend to indirectly lead to lower consumer borrowing rates by making it cheaper for banks to borrow money—when it's less expensive for banks to borrow money, they usually pass the savings along to consumers.

How Fed Rate Cuts Can Impact Credit Card Interest Rates

The Fed's recent interest rate cut could lead to lower interest rates on your credit cards. Most credit cards have variable interest rates linked to the prime rate, which usually moves up and down with the federal funds rate.

When the Fed lowers its benchmark interest rate, credit card APRs tend to fall over time, making balances less expensive to carry. And if you have an existing credit card balance, its APR may go down following the Fed's rate cut. 

The less interest you have to pay, the lower your minimum monthly payments are apt to be. And also, if you're not accruing as much interest on your balance and you can pay more than your minimum payments, a larger portion of those payments goes toward your principal, meaning you might pay off your credit cards sooner.

Why Credit Card Rates May Not Fall So Quickly

While a Fed rate cut could make your credit cards less expensive, that may not happen right away. When the Fed cuts rates, credit card issuers tend to be cautious and slow to reduce APRs, especially on existing balances.

It's also common for credit card issuers to update their APRs every few billing cycles following Fed decisions. You probably won’t see much of a difference in your credit card payments until and unless that happens.

In December, the Fed only lowered its benchmark interest rate by a quarter of a percentage point. Since that's a small rate cut, you may find that your credit cards only get slightly less expensive—if their rates drop at all. 

Your credit card issuers may not pass along the entire cut. It's common for credit card companies to build in a little room to account for risk and to pad their profits. 

How to Save Money on Your Credit Cards

If you want to make your credit card debt less expensive, there are some ways to make that happen outside of waiting for the Fed to cut rates.

Pay more than your monthly minimums

Minimum credit card payments each month keep you current on your debt. But you won't be getting ahead of your debt, because you're still carrying most of your balances forward and accruing interest. 

If you want to pay your credit card issuers as little interest as possible, pay more than just the minimum each month. Paying extra on your credit cards directly reduces your principal, which in turn reduces the amount of interest you’re charged.

Favor lower-rate credit cards

Each credit card issuer sets its own APR. So when you use your credit cards, consider favoring the cards with lower APRs. That way, if you carry a balance, it should cost you less. You might also compare interest rates on any offers you get for new cards. 

Negotiate with your credit card companies

If you owe money on your credit cards, contact your issuers to see if they will lower your current APR. If you have a history of on-time payments, they may be willing to negotiate to keep you as a customer.

The Bottom Line

The Fed's December rate cut won't make your credit cards less expensive overnight. But you may eventually notice that your APR is a little lower as a result of the Fed's decision. 

If you're carrying large balances on your credit cards, you could still accumulate a lot of interest even with a lower APR. If you're struggling to keep up with your credit card debt and you don't see a path toward paying off your balances, consider talking to a debt relief company to see what options you have. Depending on your financial situation, you may be eligible for debt settlement or other relief.