How A Lower Interest Rate Can Help You
Lowering the interest rate on even one credit card may help you pay off debt sooner, which may also increase your credit scores.
It’s important to maintain good credit habits after you’ve lowered your interest rates and paid off debt: Avoid charging more purchases unless there’s an emergencyand even then, an emergency savings account should help you avoid having to use credit cards in the first place.
If your card issuers hold out and won’t lower your rates, be patient and call again to negotiate periodically. Changes in circumstances, available card offers and even different customer service representatives may get you the response you want.
Check Your Credit Card Statements
First, gather your together. It’s important to know your credit history, payment schedule, and other important details before calling your credit card company and asking for a reduced rate. Note your current interest rate so you can negotiate, and you may also want to compare your rate to that of average credit card rates to see where you stand.
On the statement, you will see a customer service number. Call the number and key in the option to speak to an operator. The operator should be able to connect you with the correct person who can negotiate your rate.
Although physically picking up the phone and calling your credit card company may seem like a time-consumingand potentially dauntingprocess, think of it this way: This phone call could potentially save you hundredsmaybe even thousandsof dollars on your credit card payments.
Do Understand Your Limits
Every credit card company sets standards on interest rates which are based on your credit history. If you dont qualify for a lower rate, then you cant count on a phone call for a quick fix. Work on building your credit, and then ask again once youre in a better financial position.
If youre running into challenges working with creditors on your own, our free Credit Counseling may be able to help you make progress.
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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 .
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:
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What Does Annual Percentage Rate Mean
Annual Percentage Rate, or APR, determines the cost of credit for a year and is the interest rate you pay on a loan as it relates to credit cards, mortgages, auto loans, etc. APR is commonly used to compare individual products like a credit card from various lenders before you make your decision. APR can be fixed or variable. Most credit card issuers base their variable rate on the U.S. Prime Rate with an additional margin applied. There are also various types of APRs for credit cards like purchase APR, cash advance APR, or balance transfer APR. Learn more about what APR is and what it means to you.
Improve Your Credit Score
Whether youre going to apply for a new credit card or trying to negotiate a lower APR on your current credit card, a good way to land a better interest rate is to take some steps toward improving your credit score. One of the easiest ways to give your credit rating a boost is to pay your credit card bill early or on time every month.
You should also refrain from opening too many new accounts, which leads to multiple hard inquiries on your credit report, and closing accounts, which can increase your . Both moves can negatively impact your credit score, along with other factors.
If you have a lot of debt in relation to your credit limits, you can also improve your credit score by paying off your debt. Most experts recommend keeping your credit utilization rate below 30 percent for the best results, which means maintaining $3,000 or less in revolving balances for every $10,000 in total credit you have.
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Pros Of Personal Loans
- Lower interest rates: Personal loan rates are usually lower compared to credit cards. This could save you money on interest charges and even help you pay off your loan faster.
- Fixed monthly payments: Personal loans generally have fixed interest rates, which means your monthly payments will stay the same throughout the life of the loan.
- Options for poor or fair credit: While many personal loan lenders require good to excellent credit, there are others that offer personal loans for bad credit.
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Lowering Your Interest Rates Through Debt Consolidation
Debt consolidation is a way of taking matters into your own hands and proactively attacking your debt. This is particularly a good solution if you have more than one high-interest credit card. Options range from debt management to other interest-bearing credit solutions. There are upsides and downsides to all of them, and none will eliminate what you owe.
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Get A Low Interest Credit Card
While itâs always recommended you avoid carrying a balance, if you anticipate youâll need to continue using a credit card for daily purchases to tie you over during a cash crunch, itâs best to use a low interest credit card.
Some of the best low interest credit cards in Canada come with rates as low as 8.99% to 12.99%, which is well below the average of 19.99% found on most rewards credit cards. Just be sure to only use credit for absolute essential purchases, track your spending, and avoid splurging on nice-to-haves.
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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 But Always Pay The Balance Off On Time And In Full
If this is you, keep up the good work and no, there’s no pressing need to close your card. You only pay interest on a credit card when you carry a balance, so you don’t need to worry about your interest rate if you feel absolutely comfortable paying your balance in full and on time each billing cycle.
“If you pay your balance in full every month, then the interest rate on the credit card is irrelevant to your situation,” Roger Ma, a certified financial planner atlifelaidout® and author of“Work Your Money, Not Your Life,” tells Select. “And if the card is a great fit otherwise, then certainly hold on to it.”
This is particularly true if that high-interest card comes with great rewards, as is often the case.
For example, both the Alliant Cashback Visa® Signature Credit Card and the Capital One® SavorOne® Cash Rewards Credit Card ranked on Select’s list of the best cash-back credit cards. Whereas the Alliant Cashback card has a regular 12.24% to 22.24% variable APR, the Capital One SavorOne card has a higher 15.49% to 25.49% variable APR. Your credit score will determine what APR you have in those ranges, but it’s worth noting that the one with the overall higher interest rate has a few extra premium rewards.
In addition to these rewards and bonuses, the Capital One SavorOne Cash Rewards Credit Card comes with opportunities to access VIP tickets, five-star meals and other fun experiences, whereas the Alliant Cashback Visa Signature is much more straightforward.
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What To Do If Credit Card Companies Wont Negotiate
If your creditors are not willing to work with you to reduce credit card APR, then you need to seek alternate means of debt relief. There are other ways to reduce or eliminate interest charges if your creditors wont play ball. Depending on your credit, debt and overall financial situation, you can:
How Do You Calculate Credit Card Interest
First take your APR and divide it by 365 to get your daily interest rate. Every day, your credit card issuer will multiply the daily interest rate for each transaction that hasnt been paid off by the dollar amount of the transaction. Thats how much interest youll be charged for that day. This interest gets compounded, which means its added to what you owe. Each day, youll have a new daily balance, and the credit card issuer will calculate the interest on this amount. The daily interest charges are all added up to determine your monthly interest payment, which keeps compounding until you pay your bill in full.
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First Call Your Creditors To Negotiate Lower Interest Rates
This is the all-important first step that most people skip. People often never call their creditors to even ask for lower rates. As a result, it makes it harder to eliminate the debt and leads to higher costs.
Always keep in mind that lower interest rates make it easier to pay off debt. A lower rate means less of each monthly payment you make gets eaten up by accrued interest charges. Thus, you can pay off the principal much faster.
To do this step effectively:
Now call the customer service department for each credit card and request a rate reduction. You may be passed up the chain to a supervisor that can authorize a new rate. Find tips to help you negotiate lower interest rates effectively.
Ways To Reduce Credit Card Interest
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Credit card debt takes a toll. Beyond the stress of having it hanging over you, the interest can cost hundreds or thousands of dollars per year. According to a NerdWallet study, the average U.S. household with revolving credit card debt balances carried from one month to the next will pay $1,155 in interest charges this year.
The only way to eliminate credit card interest entirely is to pay your balance in full every month. But there are also ways to reduce your interest costs significantly as you pay down debt.
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Figure Out Your Credit Score
Some of the first things your credit card company will look at are your payment history and credit score. You can order a free annual credit report to ensure it’s accurate and to see your payment history and debt-to-income ratio . Reviewing the report — checking for late payments or other blemishes — will give you a sense of how assertive you can be when asking for a lower rate.
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Ask Your Lender For A Rate Reduction
One of the simplest ways to reduce the interest rate on your current credit cards is to simply ask your card issuer to work with you. You can make this request by calling the customer service number on your , explaining why you need or want a rate reduction, and asking them what they’d be willing to do.
Card issuers often want to keep your business so if you let them know you’re thinking of switching to a different card company or doing a balance transfer, they may be eager and willing to drop the rate on your current card. Likewise, they also want you to keep paying your bill on time, so if you explain you’re facing financial struggles, then dropping the interest rate to help you out may also be a possibility.
Generally, you may be more likely to have good luck with this approach if you have had the card open for a long time. You may need to call more than once before you get someone willing to help you out, though. And, in some cases, the card issuer will agree only to a temporary rate reduction — but that can still help you keep costs down.
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Take Stock Of Your Situation
Before you approach your card issuers to ask for lower interest rates, you’ll want to take stock of the rates you’re currently paying. You can find them listed on your statement, in the top rows of the table known as the “Schumer box.” The entry for “Annual Percentage Rate for Purchases,” which affects daily charges and related balances, is the one to focus on when seeking rate reductions. Note this figure for all of your open credit card accounts.
In addition, if there’s urgency in your desire for lower interest ratesif you’re unexpectedly unemployed, for example, or have experienced a medical emergency or other circumstances that create a financial hardship, you can include that information along with your request for an interest rate reduction. Be prepared to explain the situation clearly, briefly and in a matter-of-fact fashion.
It’s also helpful to take a look at your financial situation with a mind toward the way credit card issuers do business and the reasoning they apply when setting interest rates. Credit scores are designed to predict the likelihood you’ll fail to pay back your debts, with lower scores corresponding to a greater likelihood of payment failure. Lenders tend to view customers with lower credit scores as riskier to work with, and they charge them higher interest rates to compensate for the extra risk. So if you’re looking for lower interest rates, one way to make a case for them is to show you’ve increased your credit score.
Situation : You Have A High Interest Credit Card And Are Always Carrying A Balance Month To Month
If you’re in this situation, know that you aren’t alone. On average, Americans carry $6,194 in credit card debt. But it’s certainly costly and a reason to maybe close your high-interest credit card, says Ma.
If you carry a balance on a credit card charging you high interest, consider transferring that debt to a balance transfer credit card which gives you time to pay down your principal without accruing interest. To qualify for the longer interest-free periods, you will most likely need to have good or excellent credit , but there are options available for fair credit as well.
Whether you then close your high-interest credit card after you make the transfer will depend on just how much you are allowed to transfer. Your credit score will also determine the amount of debt you can transfer .
If you can’t transfer the whole amount of your balance, you will need to keep what’s left over on your high-interest card. In that case, you’ll want to pay off the debt on your high-interest card before paying off the balance on your balance transfer card since the latter isn’t charging you interest for a period of time.
The Citi Simplicity® Card ranked on Select’s best balance transfer credit cards because of its long balance transfer period. The card offers one of the longest stretches of interest-free time to pay off your debt with a 0% APR for the first 21 months on balance transfers .
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