Two Types of Credit Card Users: Which One Are You Costing Yourself Money?

A March 2026 Federal Reserve Bank of Boston study analyzed nearly 80% of all US credit card accounts active between 2016 and 2025 and found something that should change how you think about your credit card strategy: not all cardholders respond the same way when interest rates rise. Whether you carry a balance or pay in full every month determines whether a rate hike hits your spending power by almost nothing, or by nearly double the average.

The research, published by economists Falk Bräuning and Joanna Stavins, found that a one percentage point increase in a credit card’s annual percentage rate reduces overall credit card spending by 8.7% in the following month. But that aggregate number masks a divide that matters far more than the average: cardholders who carry balances from month to month cut their spending by 15%, while cardholders who pay their balance in full see no statistically significant spending decline at all.

Same rate increase. Completely different financial outcomes. The difference comes down to one behavioral choice.

The Two Types of Credit Card Users

The Federal Reserve research distinguishes between two categories of cardholders that the industry has used for decades but that rarely get explained clearly in personal finance discussions.

Revolvers are cardholders who carry a balance from one billing cycle to the next. They make a purchase, receive a bill, and pay less than the full amount due. The remaining balance accrues interest at the card’s APR until the next statement. Many revolvers make minimum payments, which extends the debt for months or years and results in total interest costs that can exceed the original purchase price. Others pay more than the minimum but still carry some balance forward.

Transactors are cardholders who pay their statement balance in full each month. They use the card as a payment method, collect any rewards or cash back, and pay zero interest. For transactors, the APR printed on their card statement is largely irrelevant to their actual costs because they never carry a balance long enough for interest to accrue.

The Boston Fed study, which drew on supervisory data from bank stress-testing covering the overwhelming majority of active US credit card accounts, found that when interest rates rise, revolvers cut spending at nearly double the rate of the general population. Accounts with low credit scores cut spending even more aggressively, by 18%, compared to the 8.7% average.

Transactors and high-credit-score accounts, on the other hand, do not meaningfully reduce their spending when rates rise. Instead, when rates increase, high-credit-score accounts tend to pay down their existing balances faster, reducing their balance by 7% per one percentage point rate increase. They protect themselves not by spending less, but by carrying less debt.

Why This Gap Exists and Why It Matters Now

The reason revolvers cut spending more aggressively when rates rise is straightforward. Every dollar they charge to the card carries a real ongoing cost: the monthly interest that accumulates on their unpaid balance. When that interest rate goes up, the effective cost of every purchase goes up with it. A $500 purchase on a card with a 22% APR that takes six months to pay off costs meaningfully more than the same purchase on a card with a 19% APR. Revolvers feel this cost acutely, which is why they respond to rate increases by spending less.

For transactors, the APR is essentially hypothetical. They charge purchases, pay the full balance within the grace period, and owe zero interest. A card with a 28% APR behaves identically to one with a 15% APR for a transactor, because neither rate ever applies to an unpaid balance. Rate increases from the Federal Reserve pass through them without changing their financial position.

This distinction matters particularly right now because credit card rates have reached historically high levels and remain elevated. Average credit card APRs rose from roughly 16% in early 2022 to above 20% by 2024, tracking the Federal Reserve’s rate-hiking cycle. Even as the Fed has begun to ease rates, card APRs have come down slowly, and the Consumer Financial Protection Bureau has noted that the spread between card rates and the federal funds rate has widened, meaning issuers have not passed rate cuts through to consumers as quickly as they passed rate hikes.

The people most exposed to this environment are revolvers, and the Boston Fed data suggests their spending behavior shows it.

The Hidden Cost of Being a Revolver

The spending reduction effect documented by the Boston Fed researchers captures only part of the cost of carrying a credit card balance. The more immediate cost is the interest itself.

At a 22% APR, a $5,000 credit card balance costs roughly $91 per month in interest charges before any principal is paid down. A cardholder making minimum payments of around 2% of the balance would take over 30 years to pay off that debt and would pay more in total interest than the original principal. Even making fixed payments of $200 per month, it takes nearly three years to eliminate a $5,000 balance at 22% APR, and the total interest paid exceeds $1,700.

The calculator below shows how much your current credit card balance is actually costing you and how different payment strategies change that outcome.

Why Credit Cards Account for 20% of All US Spending

One reason the Boston Fed chose to study credit card spending specifically is scale. In 2022, American consumers made purchases totaling $5.83 trillion using credit cards, representing roughly 20% of all consumer spending in the country. Credit cards are no longer primarily a borrowing tool for people in financial difficulty. They are the dominant payment method for a large share of everyday transactions, from groceries to utilities to online subscriptions.

This means that how credit card users behave when interest rates change has measurable effects on the broader economy, which is why the Federal Reserve studies it. When revolvers cut spending in response to rate increases, that contraction ripples through consumer-facing businesses. The Boston Fed researchers note that the largest aggregate effect on spending occurs about two months after a Federal Reserve rate change, which is roughly how long it takes for card rates to adjust and for cardholders to modify behavior.

For individual cardholders, the implication is that your card type determines how much of the Federal Reserve’s monetary policy decisions land directly on your household budget. Revolvers are, in effect, more exposed to macroeconomic interest rate cycles than transactors, through no difference in income or spending discipline, but purely through the structure of how they use their cards.

How to Move From Revolver to Transactor

The gap between revolvers and transactors is not fixed. It is a behavioral outcome that can be changed, though it typically requires addressing both the existing balance and the underlying spending pattern simultaneously.

The most important first step is establishing what a zero-balance month would actually require in terms of monthly payment. Take your average monthly credit card spending, add any existing minimum payment obligation on a carried balance, and compare that total to your monthly cash flow. If paying the full statement balance is feasible but you have been paying less out of habit or convenience, the shift is immediate: simply change your autopay setting from minimum payment or fixed amount to statement balance in full.

If the existing balance is large enough that paying it off in full is not immediately feasible, the path is sequential: first, stop adding to the balance by keeping new spending within what you can pay in full each month; second, put any available surplus toward the balance using a structured payoff plan. A balance transfer to a card offering a 0% introductory APR can significantly reduce the cost of this process by pausing interest accumulation during the payoff period.

The goal is not to stop using credit cards. As the Boston Fed data shows, transactors use their cards freely and without financial consequence when rates rise. The goal is to use them in a way that makes the APR irrelevant to your actual costs.

What High Credit Scores Actually Do

The Boston Fed research also offers an interesting secondary finding about credit scores that connects to the transactor versus revolver distinction. When interest rates rise, high-credit-score accounts pay down their balances faster rather than cutting spending. This suggests that high-credit-score cardholders have the financial flexibility to respond to rate increases by adjusting their debt level rather than their lifestyle.

This is partly a mechanical relationship: high credit scores tend to correlate with higher incomes, larger liquid savings buffers, and lower existing debt loads, all of which make it easier to absorb a higher borrowing cost by accelerating payoff. But it also reflects a behavioral pattern that high-credit-score cardholders are more likely to be transactors or near-transactors to begin with, maintaining relatively low balances relative to their credit limits and income.

The credit score, in other words, is partly measuring the same underlying behavior that the transactor designation captures: the habit of treating a credit card as a payment tool rather than a borrowing tool.

The One Decision That Changes Your Position

The Boston Fed research is useful precisely because it makes abstract monetary policy tangible at the household level. When the Federal Reserve changes interest rates, the effect does not land equally across all credit card users. It lands hardest on revolvers with low credit scores, who see spending reductions of up to 18% per percentage point of rate increase. It lands lightly or not at all on transactors.

That gap is not determined by income, by intelligence, or by financial sophistication. It is determined by one decision: whether the credit card balance reaches zero each month before interest accrues.

Making that decision consistently is what the research calls being a transactor. It is also what every credit card rewards strategy, cash back optimization guide, and credit score improvement plan implicitly assumes. The rewards only make sense if you are not paying interest. The credit score benefits only compound if you are not carrying large revolving balances. The financial resilience to Fed rate hikes only exists if there is no balance for the higher rate to apply to.

The research confirms what personal finance has always recommended, but now with account-level data covering the majority of American credit card activity over nearly a decade: pay your balance in full every month. The people who do are the ones whose spending the Federal Reserve cannot touch.