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.
Prepare A Strong Case For Why You Deserve A Lower Apr
Depending on your circumstances, you may be able to strike a deal with your lender to lower your APR. However, lenders policies vary, and some may be more willing than others to work with you especially if you have a long relationship and have been a good customer.
Before you try negotiating with your lender, take some time to dig up information that can help persuade them youre a trustworthy and profitable customer and deserve a better deal.
For example, scribble on a piece of paper your current APR, how often you use the card and how much you typically charge. The more regularly you use your card, the more likely a lender may be to try to work with you. Also, note how many years youve owned your credit card. If you just recently opened it, a lender may not be willing to lower your rate so soon.
In addition, research other cards and note which ones offer a lower APR. That could come in handy if you want to remind your lender that you can take your business elsewhere. It will also help you avoid hurting your case by requesting an APR thats way below what others offer.
Finally, look up the U.S. prime rate, which is the bench mark rate that helps set your APR, and subtract it from your APR. That information could help you argue to a lender that the difference between the prime rate and what youre being charged is too high.
How To Lower The Apr On Your Credit Cards
One of our readers, Teresa, sent us this question:
I dont have any delinquent cards. In fact, my credit score is about 680. I simply have too many credit cards and would like to pay them off before any trouble arises being the economy is what it is.
I would like to achieve a higher credit score, pay lower aprs and reduce my monthly payments on those credit cards.
Can I reduce my aprs by simply calling the creditor and asking them to lower my apr? If they refuse to should I threaten to close the account? I ask about the threat process because that is usually when they take you serious and then pass you along to management with authority to negotiate.
I can follow through on account closure threat up to about $5,000. I have some accounts with 26.9% APR and a max credit line of $1,000. My highest major credit card line is $7,000 and the APR is 14.9%. My current balance is about $4,500. All the other cards are $1,000 less with higher APRs.
I am willing to pay off up to $5,000 in debt on the higher interest cards but I would rather negotiate lower APRs, get the payments reduced and then pay them off. Is that possible with the threat process? Where do I start? How should I professionally and seriously approach the creditor?
Thanks for your question Teresa!
You can absolutely call your credit card companies to have your APR lowered. There are a few key things to keep in mind when you do:
Hope this helps, good luck in your negotiations!
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Open A Credit Card With An Introductory 0% Deal
One way to bring down the interest rate on your credit balance is to transfer it to a card with an introductory 0% promotion. If your credit is good enough to qualify for one of these offers, you could end up dodging finance charges for a long time.
But keep in mind that there are a few things to watch out for with balance transfers. The first is fees most credit cards charge a 3% fee for transferring a balance. This could significantly cut into the overall amount youre saving.
TIP: Check out our tool to figure out the true cost of your balance transfer.
Be mindful of making your payments on time. Missing even one could cause your introductory deal to be canceled, and interest may start accruing right away. Also, you should make your best effort to pay off your balance before the 0% period ends. Again, interest will eventually start accumulating if you carry a balance beyond that point.
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Should I Buy Down My Mortgage Rate
Why Buy Down Your Interest Rate? A lower interest rate can not only save you money on your monthly mortgage payment, but it will reduce the amount of interest you will pay on your loan over time. Check out the difference in monthly payments and total interest paid on this $200,000 home loan example.
How Aprs Are Calculated For Credit Cards
Figuring out how much credit card interest youâll pay can be confusing. There are four basic steps to calculating interest charges and fees. Use this as a guide to see how interest adds up over time and how to choose which cards to pay down first.
Hereâs an example: Your APR is 14.99 percent. Your bank uses a DPR.
14.99 divided by 365 = 0.04106
0.04106 divided by 100 = .004106, or your daily periodic rate
If you have 27 days in your billing cycle, hereâs what it will look like:
divided by 27
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Dos And Donts Of Negotiating Credit Card Interest Rates
Take Charge Team
Lets take a look at the numbers. If you have $5,000 in credit card debt with a fixed interest rate of 18%, youll end up paying more than $2,900 in interest alone if you only submit the minimum payment each month.
Now, lets say your interest rate is reduced to 13%. In this same scenario, youd pay about $1,800 in interest, which is a difference of $1,100. Better yet, if you have an interest rate of 10%, youll end up paying a little more than $1,200, a difference of $1,700. Thats a significant savings for any household.
Whenever possible, we recommend paying more than the minimum monthly payment. Yet this example gives you an idea of how a few percentage points can impact your total debt amount. We cant guarantee every consumer will be able to lower their interest rates with a phone call, but its certainly worth a shot with thousands of dollars on the line.
In this part of the Take an Interest in Your Interest series, were offering valuable dos and donts for negotiating credit card interest rates.
Check Your Credit Report
Another weapon to have in your arsenal of persuasion is to know your credit history, FICO score, and other information on your credit report. Luckily, you can receive your credit report for free once a year and instantaneously through each of the 3 credit bureaus . To do so, apply online at:
Make sure that you have a healthy credit history or at least no major credit errors in the last seven years. Even if you do have some credit mishaps, it is better to be aware of them and anticipate where a credit card company might find grounds to not give you a lower APR.
This information will come in handy later if and when you have to play hardball with the credit card companies. As an added bonus, you can gain insight into your financial historyand that never hurts, either!
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Cons Of Personal Loans
- Might come with fees: Some lenders charge fees on personal loans, such as origination or late fees. This can add to your overall loan cost.
- Can have larger payments: Depending on your repayment terms, you might end up with higher monthly payments on a personal loan compared to a credit card. Before you sign for a loan, be sure your new payments will fit comfortably in your budget.
- No rewards: Unlike credit cards, personal loans dont come with any rewards.
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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How To Lower Credit Card Interest Rates: 4 Options
There are a few possible ways to pay less interest on your credit card, such as asking your card issuer for a lower rate or consolidating your debt with a personal loan.
Edited byAshley HarrisonUpdated October 1, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
A high-interest credit card can be a major burden on your finances. The average credit card interest rate was 14.75% as of February 2021, according to the Federal Reserve which could translate into steep interest charges if you only pay the minimum payment each month.
However, there are ways to potentially lower your credit card interest rate, which could help you save money while paying off your balance.
Heres how to lower credit card your interest rate:
What Is A Good Credit Card Apr
As of February 2014, the average APRs for fixed and variable credit cards are 13.02 percent and 15.38 percent, respectively, according to Bankrate. If your rate is close to the average rate, you are in pretty good shape. However, MSN says that if your credit card rate is closer to the 10 percent range, you have a low-rate card and you are getting a really good deal.
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Position Yourself For The Lowest Apr Possible
Instead of lowering the rate on your current card, you could set yourself up for success in another way.
Having a good credit score may help you receive better offers for new credit cards with lower ratesâamong other things. Why? Because many issuers use credit scores to make decisions about applications and interest rates.
If your credit needs work, the CFPB says you can take steps to improve your credit score by:
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.
See related: How do 0% APR cards work?
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How To Get A Lower Interest Rate On Your Credit Card
If you have credit card debt and youre ready to start paying it off, then you are probably thinking about how to make your repayment more efficient. There are two variables in the equation that make your debt expensive: principal and interest. Principal is the amount you have charged to the card, and you cannot do much about that now . Generally, you are stuck repaying the principal in full.
Interest, on the other hand, grows over time even if you dont make future purchases. However, you canlower your interest expenses. You can minimize interest by paying down your principal. And, you can lower the interest rates on your credit cards, which will lower your interest costs over time.
Why this Matters
The primary reason for lowering your interest rate is to save money! This is especially helpful if you have debts on multiple cards and are trying to dig yourself out. Every bit of savings helps. Here is a quick example of how much you could save by lowering your interest rate.
Imagine you have a $10,000 balance on a credit card that charges 18 percent APR and has a minimum payment of $250. The NFCC credit card payment calculator shows that this account would cost you $5386.23 in interest before the account is paid off.
If you lower the interest rate to 12 percent instead of 18 percent, and make the $250 monthly payment, then you would only pay $2834.67 in interest expenses. That one small change of lowering your interest rate would save you $2,551.56!
Open a New Card
How I Got 3 Major Credit Card Issuers To Lower My Interest Rates
If youre concerned about the possibility of carrying a credit card balance during the coronavirus pandemic, you may be able to lower your interest rates by contacting your card issuers right now.
I reached out to five major credit card companies to see if they would lower my interest rates. Ill share the results in this article.
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How To Take Out A Personal Loan
If you decide to take out a personal loan to help reduce how much you pay in credit card interest, follow these four steps:
|All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | Read more about Rates and Terms|
How To Negotiate A Lower Interest Rate On Your Credit Card
Learning how to negotiate a credit card rate is a skill every financial consumer should learn.
Americans are doing a better job curbing credit card debt although theres always room for improvement. The average U.S. credit card balance per cardholder stood at $6,194 in 2019, according to Experians Consumer Credit Review. Thats an increase of 3% compared to 2018.
Yet during the coronavirus pandemic and subsequent business lockdowns, Americans have done a solid job of working to pay off debt. The New York Federal Reserve noted that U.S. credit card balances declined sharply in the second quarter, by $76 billion, the steepest decline in card balances seen in the history of the data and reflecting the sharp declines in consumer spending due to the COVID-19 pandemic and related social distancing orders.
For credit card consumers looking to further cut credit card debt, or get on the debt-reduction bandwagon, one way forward is to negotiate card interest rates with credit card providers. Here’s what you need to know about negotiating the interest rate on your credit card.
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