Avoid High Interest Rates On Your Credit Card
A credit card is a useful way to make purchases. But paying interest on those purchases could make everything you buy a little more expensive. Thereâs plenty that factors into interest charges, but a big part is your annual percentage rate âand how high it is.
If youâre looking to lower the APR on your credit card, you may have seen articles that tell you to pick up the phone and simply ask your credit card issuer for a lower rate. But itâs not always that simpleâand thereâs no guarantee of success. So it may be helpful to learn some other ways to improve your APR.
Situation : You Have A High Interest Credit Card And Sometimes Pay The Balance Off On Time And In Full
You may not always be able to pay off your balance on time or in full, especially during a time like the coronavirus pandemic. But there are some steps you can take to avoid racking up debt on your high-interest credit card without having to close it.
First, call your credit card issuer and see how they can help you.
“If you don’t pay off your full balance each month and have a high interest rate on your card, it may first make sense to try to negotiate with the card issuer for a lower interest rate,” Ma says.
Certainly now, credit card issuers are more flexible when it comes to offering relief to their cardholders. They also may be willing to downgrade your current card to a lower interest card or one with no interest at all. This way, you don’t have to technically “close” your high-interest card, which can lower your overall and increase your . A decrease in your credit utilization rate will bring down your .
How Can I Reduce The Chances Of My Credit Card Provider Increasing My Interest Rate In This Way
There are no firm rules. Thats because credit card providers may take different things into account. But, it would help if you:
- make sure you pay your monthly payments on time
- reduce the amount you owe whenever you can
- make sure that you keep up with payments on your other types of credit
- keep within your agreed credit limits and
- consider closing any accounts you no longer use or need.
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Request A Reduced Rate Directly From Your Issuer
If youd prefer to keep your current card but still want a lower interest rate, you may have success contacting your issuer directly and requesting a decrease in your rate. In fact, according to one survey, your odds are fairly good 69% of surveyed cardholders who asked for a lower rate were able to negotiate a rate reduction with their issuer.
Interest rate decreases can be requested by calling your issuers customer service department. You can do a few things to increase your chances of success when you call, starting with a little research into your credit situation. Interest rates are based on creditworthiness, so knowing where you stand and being able to demonstrate it for your issuer can go a long way toward proving that youve earned a break on your interest rate.
You can contact your issuers customer service department to request a rate reduction.
Youre also more likely to be approved for a rate decrease if the rate you ask for is reasonable few companies will drop your rate to zero just because you asked nicely. To determine what might be a reasonable request, look into what rates the issuer offers on the card.
Most credit cards have a predetermined APR range from which your exact interest rate is assigned based on your credit. Ranges can cover 10 percentage points or more and will often vary based on the prime rate.
Submit A Request Through Your Credit Issuer
Depending on your credit card issuer, if you ask for a lower interest rate, a customer service specialist can submit a request on your behalf. Keep in mind that not every credit card issuer or bank accepts these requests and there is no guarantee that this request will be accepted. There are regulations that your bank or credit card company has to follow before they can increase/reduce your APR, but it wouldn’t hurt to find out if you qualify for a reduced rate.
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Does A Change In An Interest Rate Only Apply To My Future Spending
No. The new interest rate will apply to all of the money you owe on your card, except for any amounts you may have at special promotional rates. This is because the risk that you might not be able to pay back the credit applies equally to money you have already borrowed and any money you will spend in the future.
Balance Transfers Offer Low Introductory Rates
Transferring your credit card balance to another card is an option for those with solid credit scores. Many balance transfer cards come with a 0% introductory rate for 6-12 months, which can be a great tool to eliminate debt.
But there is a catch
That low rate is a ticking time bomb. Once the honeymoon phase is over, credit card companies will often slap you with rates well above average. There is also usually a transfer fee of 3% to 5%, meaning you would pay as much as $500 to put $10,000 in old debt onto a new card.
You will have to have a good-to-very-good credit score to qualify for one of these cards. Those without solid credit should look to debt management programs for relief.
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Check Your Payment History
Look over monthly statements. Familiarize yourself with what you pay and if you pay on time. You want to have a discussion from a position of knowledge, rather than have the credit card company bring up a payment history youre not aware of. Hardships like unemployment, divorce, an illness, or something else that caused a financial setback and led to missing payments are things to bring up. Stress that youre committed to being a good customer and paying on time.
Cash Advance Fee Waivers
The least successful of all concession requests on the Lending Tree survey had to do with cash advance fees. Although up 8 percentage points this year over last year, still barely half of such requests were successful at just 53%.
The riskiest of any credit card transactions for the card company, cash advances dont provide these businesses with any leverage should the transaction go poorly or the cardholder fail to repay the cash loan. There is no merchant to work with to figure out how to minimize such possibilities in the future. Instead, the card company would just be out of luck when it comes to the cash they advanced the consumer.
Cash advances on your credit card will set you back not only with the typical 3% to 5% fee but also with the far-higher-than-normal interest rate. Most APRs for cash advances are nearly ten percentage points higher than those on standard purchases.
If your circumstances are such that you feel a cash advance is your best option, then, by all means, ask your credit card company for a waiver of the fee. It may only be $30 to $40 on a $500 advance, but in the end, it works out much better than a payday loan, a car title loan, or a pawn loan whose fees equate to APRs in the 100% to 500% range.
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Does asking for a lower interest rate affect my credit score?
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Asking For A Lower Apr
In 2022, consumers have a very high chance of getting a lower interest rate on their credit card if they ask for it from their credit card company. Lending Tree found that 70% of such requests were successful in 2022. With the average variable credit card interest rate currently hovering just above 16%, and $3,545 being the average credit card debt per American adult carrying a credit card balance, any reduction in that rate granted by the credit card company could save the consumer hundreds of dollars a year in interest, or even thousands over the coming years.
Annual Fee Waivers And Reductions
Even though this was down from 92% a year earlier, the success rate should encourage any cardholder paying an annual credit card fee to reach out to their card companies. Ideally, you should submit your request before the fee is due rather than trying to have it credited to you after your card company charges you the fee.
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Consider A Balance Transfer Credit Card Instead
Balance transfer cards may provide you an alternative for getting a lower interest rate on your current credit card debt. This may allow you to consolidate your existing balances from multiple cards onto a single, new card.
Youll want to use a credit card with a 0% introductory annual percentage rate, or APR, offer for balance transfers to save money on your debt repayment. Here are some cards to consider.
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Consider A Balance Transfer Card
If you cant get your credit card issuer to lower your rate, then it may be time to move on to another lender.
If you have good to excellent credit, you should be able to qualify for a balance transfer card with a low or 0% introductory APR. Be careful, though: Many balance transfer cards charge costly balance transfer fees and high APRs once the promotion is over.
If your credit score is low, you may have trouble qualifying for a top balance transfer card. However, there are some cards that offer promotional balance transfer rates to consumers with lower scores.
Option #: Apply For A New Credit Card
Despite your best efforts, you cant force your card issuer to change the terms of your agreement. No matter how prepared you are before you make the call, theres a chance your card issuer will deny your request for a lower rate. If this happens, you may want to consider opening an alternative credit card and taking your business elsewhere.
Depending on the condition of your credit, you may be able to qualify for a balance transfer credit card with a low-interest introductory offer. For those with good credit, balance transfer offers can provide a 0% APR on transferred balances for a year or more.
Some introductory offers will only apply to one type of transaction, such as solely new purchases or balance transfers.
Make sure to include any potential fees when doing the math for a balance transfer. For instance, many cards charge balance transfer fees that can run between 3% and 5% of the total transferred balance.
If you qualify for a balance transfer offer, consider coupling your new, lower rate with an aggressive debt elimination plan. By using these two strategies together, you may finally be able to eliminate your credit card debt once and for all.
Keep in mind, you dont have to close your existing credit card account when you open a new one. If you pay off your full balance, the higher interest rate on your old account wont cost you any extra money. You only have to worry about credit card interest fees whenever you carry a balance on your account.
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I Asked 5 Credit Card Issuers For Help: Heres What Happened
For some background, I pay off my credit card balances in full and have a credit score above 800. But whether you have credit card debt or not, it doesnt hurt to ask for a lower interest rate.
Although Im able to pay my bills right now, the future is uncertain. This is part of my plan for a possible recession.
After gathering five of my credit cards from different issuers, I reached out to them using the number on the back of the card or through live chat on their official websites. Heres the sample script I used:
Ive been following the news about the coronavirus and am asking for help. Im not currently facing a hardship, but I wanted to see if you had any offers for a lower interest rate. Is there anything that you can do for me?
It took me about 45 minutes to call or chat with all five of the credit card issuers: American Express, Chase, Citi, Discover and Wells Fargo.
Three of the companies lowered my interest rates. The best offer was from Discover, which gave me 0% APR for 12 months on purchases. The normal APR on my Discover it card is 21.49%.
Here was the result with each of the issuers:
- American Express: 3% APR reduction on purchases
- Chase: No offer provided
- Citi: 3.99% APR on purchases until 10/2020
- Discover: 0% APR on purchases for 12 months
- Wells Fargo: No offer provided
If you decide to call and try this yourself, my advice is to use the number on the back of your credit card for faster service.
Explore Options For Your Credit Card Payoff
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
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Can You Lower Your Credit Card Interest Rate
It is possible to request a lower credit card APR. Before your issuer will grant one, theyll often consider a few factors:
- Your credit history, score, and risk
- Your payment history
- How long youve had the credit card
- Your account terms and conditions
Sometimes, the process is as simple as calling your credit card issuer and asking for a lower rate. In many cases they will make an adjustment just by you asking, especially if you have a consistent record of paying on time, says Bobbi Rebell, CFP and author of Launching Financial Grownups.
In general, asking for a lower APR wont have any impact on your credit score. But to be safe, you can always ask your issuer about any potential consequences to your credit, says Jeff Arevalo, a financial counselor for GreenPath Financial Wellness, a nonprofit counseling agency.
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Review Your Payment History
Youll have the best chances of scoring a lower APR if youve had your card for a few years and made on-time payments throughout the lifetime of your account.
You may have more trouble getting a lower interest rate if your credit score isnt ideal or you have a high debt-to-income ratio, says Rebell. Before you ask for a lower APR, work on making timely payments and keeping your utilization low to improve your chances of getting a lower rate the first time you ask.
Your interest rate on your credit card is a snapshot based on your creditworthiness at the moment you apply, says Jason Steele, credit card writer and expert. So maybe you applied for that card a couple years ago when your credit wasnt that good. Since then, youve lowered your debt, youve made all of your payments on time, and you know that your credit score has improved. All of these are behaviors that can indicate youre less of a risk to issuers and improve your chances of scoring a lower rate.
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