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When it’s time to pay, credit cards are often our go-to. But if you don’t pay your balance each month, they can also be a very expensive way to pay, with an average interest rate of 22% in November — among the highest for any loan product.

That’s why President Trump made big headlines last week when he called for a limit on credit card interest rates. In his words on Truth Social: “Effective January 20, 2026, I, as President of the United States, am calling for a one year cap on Credit Card Interest Rates of 10%.”

While the president didn’t explain how he would enact or enforce such a “cap” — and it’s unclear how much he can do without Congressional approval — his plan has gotten the nation’s attention. It’s raising questions about not just the implications of a cap but what borrowing could look like down the road.

Credit card debt is a slippery slope for many Americans. Nearly half of U.S. credit cardholders surveyed by Bankrate carry a balance month to month, paying interest rates that are higher than on a mortgage or auto loan because there’s no collateral backing the loan. Plus, interest that compounds daily can leave many people feeling stuck on a credit treadmill. Years of burdensome debt can make it harder to save enough for retirement, pay kids’ college tuition, or reach other financial goals.

With the average balance topping $6,500, limiting credit card rates to 10% would save borrowers a lot – a collective $100 billion a year, according to a recent estimate by Vanderbilt University. Think of it this way: If you’re carrying a $10,000 balance and pay $200 in a given month, $117 of it would go toward principal with a 10% rate, versus just $33 with a 20% rate.

That said, lower credit card rates could backfire if banks scale back their credit card offerings or adapt in other, less consumer-friendly ways.

“People will lose access to credit on a very extensive and broad basis, especially the people who need it most,” Jeremy Barnum, chief financial officer of JPMorgan Chase, told analysts on a quarterly earnings call this week, echoing a warning from several banking trade groups.

Some analysts say people with lower credit scores or incomes would feel it the most, since banks set rates to match their risk of being repaid. In fact, one recent study by the Electronic Payments Coalition suggested that the 10% interest rate cap would mean anyone with a credit score under 740 would be cut off from credit cards — or at least have their credit limit dramatically reduced. And that would include 82% to 88% of open credit card accounts.

A 10% cap could also push credit card issuers to raise fees and scale back rewards programs (like miles or cashback.) The Vanderbilt analysis estimates that a 10% limit would cost cardholders with FICO scores below 760 an estimated $27 billion in credit card rewards.

There’s no doubt about it, credit cards are a convenient and appealing product — you borrow only when you need to, on demand and right at the register. If millions of borrowers were to lose access, they might turn to less-regulated alternatives like payday loans, which have even higher interest rates.

But other products can offer distinct advantages over credit cards, depending on the situation. Personal loans, as one example, tend to have lower (and fixed) interest rates, making borrowing more affordable and predictable. And a Buy Now, Pay Later (BNPL) loan often charges no interest – as long as it’s repaid on time.

So what?

For now, a 10% limit on credit card rates remains a hypothetical. We can’t know exactly how things would play out in the market. But if Trump’s cap is enacted, there could be both welcome and unwelcome changes. It’s worth having a backup borrowing plan in place, especially if you have a less-than-stellar credit record.

Either way, the debate is a good reminder that credit card debt is an easy trap to fall into. Living within your means, giving every dollar a purpose, and building a healthy emergency savings can help you avoid it.

Related Reading

•  Jamie Dimon, Anthony Noto, and Other Business Leaders Respond to Trump's Credit Card Cap Proposal (Business Insider via AOL)

•  How Trump’s Cap on Credit-Card Rates Would Reshape the Rewards World (The Wall Street Journal)

•  Why Are Credit Card Rates So High? (SoFi)

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