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.
Here Are The Discover Card Interest Rates:
- Discover it® Cash Back: 11.99% – 22.99% Variable regular APR. Intro APRs of 0% for 14 months on purchases and 0% for 14 months on balance transfers. 3% intro balance transfer fee, up to 5% fee on future balance transfers *.
- Discover it® chrome: 11.99% – 22.99% Variable regular APR. Intro APRs of 0% for 14 months on purchases and 0% for 14 months on balance transfers. 3% intro balance transfer fee, up to 5% fee on future balance transfers *.
- Discover it® Miles: 11.99% – 22.99% Variable regular APR. Intro APRs of 0% for 14 months on purchases and 10.99% for 14 months on balance transfers. 3% intro balance transfer fee, up to 5% fee on future balance transfers *.
- Discover it® Student Cash Back: 12.99% – 21.99% Variable regular APR. Intro APRs of 0% for 6 months on purchases and 10.99% for 6 months on balance transfers. 3% intro balance transfer fee, up to 5% fee on future balance transfers *.
- Discover it® Student chrome: 12.99% – 21.99% Variable regular APR. Intro APRs of 0% for 6 months on purchases and 10.99% for 6 months on balance transfers. 3% intro balance transfer fee, up to 5% fee on future balance transfers *.
How To Negotiate A Lower Apr
The process of getting your credit card rate lowered only involves a few steps, shouldn’t take more than 15 to 20 minutes, and doesn’t require any advanced negotiating skills. It just takes getting the right information in your hands and the right person on the phone. Here’s how to negotiate with credit card companies.
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If You Have Overspent But Arent In Debt
Did you know?
If you only paid the minimum payment on an outstanding balance of £2,000 with an APR of 18%, it would take you 34 years to pay it back. You would pay £3,983 in interest.
If you have been spending more than you should and are juggling two or more types of borrowing, such as credit cards, store cards, personal loans or overdrafts, its a good idea to get things back under control before you get into debt. You need to review how youre using your cards and concentrate on ways to get the balances down.
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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.
Call Your Card Issuer And Ask
One way to possibly get a lower credit card rate is to simply ask your credit card issuer for a reduction. Generally, credit card issuers are friendlier to these types of requests if you have good credit and are a good customer who pays your bills on time.
When you make the call, a few points to mention include:
- How long youve been with the company
- Your history of on-time payments
- Whether your credit score has gone up
- Whether youve received better offers from other credit card companies
Also keep in mind that your request might not be approved. If this happens, dont be discouraged ask what you need to do to lower your interest rate and when you can request a reduced rate again in the future.
Check Out: How to Get Out of Credit Card Debt
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Lowering Your Credit Card Fees
Are you blown away by the interest you owe on your credit card each month? Here are some tips that will help you keep your interest fees down.
Call And Make Your Request
Now youre ready to get your credit card and call the customer service number listed on the back. When you reach a representative, politely explain the reason for your call.
If you have good credit, you can remind the representative of that and point to your history of being a good customer .
You may want to share your information about the other offers available from different companies, and explain why you may transfer your balance to a new credit card if you cant get a lower interest rate from your current company. You can also ask if they will at least match the interest rate on a competing card.
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Should You Close Your Credit Card
After youve paid off a credit card, you might consider closing it. However, keep in mind that if you close a credit card account, you might see your credit score drop. This is because a closed account could:
- Raise your credit utilization ratio, as you might have less available credit compared to how much you owe
- Lower the average age of your credit accounts, especially if youve had the account for an extended period of time
However, if you continue making payments on time on your other credit accounts, your score will likely bounce back within a few months.
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Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.
What Is A Good Interest Rate On A Credit Card
The you’ll qualify for depends on your credit score, the type of card you’re interested in and overall market conditions.
One way to gauge whether a card’s interest rate is “good” is to compare it to the average. As of November 2019, the average interest rate on credit card accounts that charge cardholders interest was 16.88%. When negotiating a lower rate on your current cards, aim for a rate that’s lower than the average.
Keep in mind, too, that rewards credit cards will likely charge higher rates than cards that don’t offer airline miles or cash back. Similarly, credit cards aimed at those with fair or poor credit and retail credit cards often have higher rates.
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How To Reduce Your Credit Card Interest Rate
One of the most depressing things about having credit card debt is the fact that the high interest rate can mean that most of your monthly payment goes to paying interest, rather than reducing your principal. This can mean a long, slow slog as you try to pay off debt.
However, you might not have to keep paying that interest rate. In some cases its possible for you to reduce your credit card interest rate just by asking.
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.
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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.
Using A Credit Card With A High Interest Rate Can Become Costly If You Don’t Pay Off Your Balance Here’s When You Should And Shouldn’t Close It
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If you have a credit card with a high interest rate, or , you may be wondering if it’s worth holding onto.
And you have a valid point. Interest rate fees can add up quickly on credit cards and make them harder to pay off. Take the below as an example:
If you only make the $35 minimum payment each month on a 22.74% APR credit card with a $1,000 balance, it will take you over three years to pay off your balance costing you an additional $453 in interest charges.
But before you close a credit card just because it has a high interest rate, there are a few things to consider. Below, CNBC Select has some recommendations depending on your situation.
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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.
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
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Figure Out What You Can Afford To Pay
The first step is to create a budget so you know how much you want to spend in each category each month, including your debt payments. The 50/30/20 budget is a good place to start: It recommends putting 50% of your after-tax income on needs, like housing, 30% on wants, like restaurants, and 20% on savings and debt payments. That will give you an idea of how much you can reasonably afford to put toward paying off your credit card each month.
Once you have that number, you can figure out how much your interest rate needs to drop to make your payment affordable. Use a to determine the interest rate that would allow you to make payments each month within your budget.
Credit Cards Are Unsecured Loans
Besides the segment of secured credit cards that allows beginners to have a credit line equal to a security deposit they pay upfront, the majority of credit cards are unsecured loans.
Unlike a mortgage or a car loan where the bank has collateral to take if the borrower doesn’t make their loan payments, there is nothing the bank or card issuer can collect from you if you’re late on a bill besides interest. With a credit card, borrowers are given a loan without any security that they will pay it back.
“The lack of a physical asset acting as security means more risk for the issuer,” financial expert John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select. “They can’t repo your dinner or your nice vacation that you paid for with your credit card. They take a default as a loss if they can’t collect from you.”
This added risk translates into a higher interest rate to cardholders since it helps banks to subsidize the risk of issuing unsecured credit to millions of people.
Federal student loans, which are backed by government funds if a borrower defaults,also carry less risk than credit cards and thus have lower interest rates. The average 15.78% credit card APR, according to the Federal Reserve’s most recent data, is more than five times higher than the 2.75% federal student loan interest rate for undergraduates for the 2020-21 school year. Even the federal rates for unsubsidized graduate student loans and parent loans don’t come close to credit card interest rates.
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Credit Card Companies Need To Make A Profit
Since credit cards are designed for large-scale consumption, issuers do business with all sorts of consumers. Because it’s risky to lend credit to millions of Americans with varying credit histories, issuers charge higher average APRs across their entire customer base.
But keep in mind, you have some say in how much you pay interest: “Interest on a credit card is optional,” Ulzheimer says. If you pay off your balance each month, you don’t have to worry about being charged.It’s therefore important to spend within your means and pay your balance off in full. We go over more tips to avoid interest below.
Tips For Speaking With Representatives On The Phone
If you want to reduce your credit card interest rate, you will need to make sure that you have it together on the phone. Here are some tips for speaking with credit card companies:
- Be polite: Dont get rude. Remain polite and calm throughout.
- Ask for what you want: Be straightforward about how you want a rate reduction. Be clear that is what you want, and ask the representative to connect you with someone who has the authority to make it happen.
- Be prepared: You can create a script, or jot down some talking points. Also, be prepared to carry through on your threat to transfer your balance elsewhere.
If you phone your credit card company and get your rate lowered, please leave a comment and let us know what your rate was and what its at now!
Tom Drake is the owner and head writer of the award-winning MapleMoney. With a career as a Financial Analyst and over a decade writing about personal finance, Tom has the knowledge to help you get control of your money and make it work for you.
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