The analysis from the Boston and Philadelphia Federal Reserve banks, titled “The Conundrum of Zero APR: An Analytical Framework,” noted that consumers accrue most debt on promotional accounts during the first few months. Though most consumers tend to speed up their debt repayment after the promotional rate ends, consumers continue to carry a balance for months afterward, according to the paper. 

“We found that these promotions are very important for the U.S. credit card market,” Michal Kowalik, a senior financial economist at the Federal Reserve Bank of Boston, said in a statement. “To avoid that rate increase, people would get another promotional card so they could transfer over the balance of the first card when the low APR expires, and the cycle would continue.”

Though credit card companies have enticed many U.S. consumers with low rates, credit cardholders end up paying significant amounts in debt interest and fees. Last October, the Consumer Financial Protection Bureau released a report indicating that credit card companies charged $130 billion in interest and fees in 2022, a record for the industry. Customers of major credit card companies who carried debt month to month paid 94% of interest and fees last year, but only earned 27% of rewards, the report said.

Meanwhile, consumer credit card balances have continued to grow overall, putting more strain on millennials in particular. In November, the Federal Reserve Bank of New York’s Center for Microeconomic Data found that 2.9% of millennials were delinquent credit cardholders, a modest increase from 2.5% year over year.

In Q4 2023, credit card balances rose 4.6% to $1.13 trillion, the New York Federal Reserve Bank said in February. The proportion of credit card balances that were delinquent by 90 days, or more, increased to almost 10%, the New York Fed said.

With the prevalence of high credit card fees and interest squeezing consumers’ wallets, the CFPB is introducing new rules to curtail the late fees credit card companies can charge. This month, the agency finalized a new rule that aims to cap late payment fees at $8. However, card issuers can charge more than $8 if they can prove it’s necessary to cover their costs. The new rule is expected to save American credit cardholders $14 billion a year, according to the federal agency.