There has been a lot of buzz in the news recently about President Trump’s proposed 10% cap on credit card interest rates and what it could mean for people struggling with high balances. While this is still a proposal, the bigger question for consumers is simple:
If your interest rates were lowered for a year, would it help you get out of debt, or would it just make the minimum payments feel more manageable temporarily?
Let’s walk through an example using a $10,000 balance and minimum payments to show:
- What a 10% cap could look like in practice and
- Why long-term solutions like a Debt Management Plan (DMP) may often go even further by reducing rates sometimes below 10%, creating a fixed payoff timeline, and helping you fully eliminate the debt instead of just slowing it down.
What a Lower Credit Card APR Could Save
Scenario: A consumer has a $10,000 credit card balance in good standing. To show the impact of interest rates, we compare 21% APR vs. 10% APR over 12 months, assuming the consumer makes only the minimum payment each month and does not add any new charges on the card during the year.
Assumptions used in this example:
Starting balance: $10,000
Minimum payment: 2% of the balance per month
No new charges and no late fees
12-month timeframe
If the APR stays at 21%
Minimum payment (Month 1): ~$200
Balance after 12 months: ~$9,704
Total debt paid down in 1 year: ~$296
If the APR is reduced to 10%
Minimum payment (Month 1): ~$200
Balance after 12 months: ~$8,873
Total debt paid down in 1 year: ~$1,127
What this means
With the lower APR, the consumer would have:
Approximately $831 less credit card debt after 12 months*
(even while making the same minimum payments).
*This is an educational example. Actual minimum payment policies vary by credit card issuer, and results depend on fees, new purchases, and account terms.
This example shows why minimum payments can keep people stuck and why interest rate reductions matter. When the APR is lower, less of each payment goes towards interest, so more goes to paying the balance.
This scenario is similar to how a nonprofit Debt Management Plan (DMP) works. Consumers who enroll in a DMP may receive reduced interest rates from participating creditors, lowering payments and helping balances decline faster. Results vary by creditor and account, of course, but the idea is the same.
What We Don’t Know About Trump’s Proposed 10% Credit Card Rate Cap
The hidden risk of a temporary cap could reduce interest costs in the short term, but it doesn’t automatically eliminate debt. If someone feels relief from the lower rate and continues using the card (adding new purchases), their balance could stay the same or even grow. If the cap ends after one year and the card’s APR rises back to its original level (such as 21% or higher), the consumer could be left with a larger balance at a higher interest rate, making repayment even harder.
Why is a Debt Management Plan Different?
A Debt Management Plan (DMP) works differently. Instead of a temporary cap, a DMP is designed to provide a structured payoff plan with a fixed term, and interest rates may be reduced below 10% depending on the creditor, with the goal of paying the enrolled balances down to $0 by the end of the program. (Results vary by creditor and account.)
The jury is still out on whether President Trump’s program will happen, but it does call attention to the effectiveness of lowering your interest rates to pay down your debt. Enrolling in a DMP is an effective solution to the problem of high-interest credit card debt with a clear end date and payoff goal.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.
