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How Do You Lower Your Credit Card Interest Rate

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How To Reduce Credit Card Interest

How to Lower Credit Card Interest Rates

High interest rates mean higher monthly payments for those with . Fortunately, there are ways to lower your credit card interest rates, including negotiating with the credit card company or consolidating your debt. Consolidation can take on several forms, ranging from a debt management program, to a personal loan to putting everything on one card with a lower interest rate.

Most high credit card interest rates are tied to a low credit score. Before you work on lowering your interest rate, its important to do your homework, including knowing what your credit score is.

The average APR for new credit cards was 19.24% at the end of 2019, but, as youll see, the average rate fluctuates depending on the credit score. The higher your score, the lower your interest rate.

Heres how it breaks down:

  • Fair Credit 22.57%
  • Good Credit 20.31%
  • Excellent Credit 14.41%

A low score may make it harder to convince your credit card company to cut a deal. .

There are things you can do to improve your credit score, but that might not be enough and is not a quick solution.

Everyones situation is different. Take a look at how to negotiate a lower rate, and if that doesnt work for you, there are other options listed below that for reducing your credit card interest rate, so you can pay off your credit card debt faster.

Paying More Than The Minimum Payment

Paying the minimum amount each month can make it feel like what you owe on your card is affordable.

But this can be a bad idea. If you dont pay off your balance at the end of the month, and youre not in a 0% introductory period, youll have to pay interest on your outstanding balance. The interest rate on credit and store cards can be a lot higher than for a personal loan.

Even if youre on a 0% rate for an introductory period, paying only the minimum each month will make only a small impact on your debt. And it could take a long time, and cost a lot, to repay the balance even if you dont carry on spending.

Also, if you make only minimum repayments, this will show up on your credit file. Other companies might assume youre struggling and will be more reluctant to lend you money.

This could even affect your chance of getting a mortgage in the future.

Always try to repay as much as you can. Even if you only increase it by a small amount each month, it can make a huge difference.

Lenders are required to suggest higher affordable repayments. If you dont respond, or ignore the issue, and the situation persists for more than 36 months this could lead to your account being suspended. Your creditor could also take enforcement action against you.

If you start missing any payments on credit or store cards, its time to think about getting debt advice.

Find free, confidential advice now using our free Debt advice locator tool

Why Try To Get Your Rate Lowered

You’re probably reading this article because you’ve decided to step up and do battle with your credit card debt. With this in mind, it’s crucial to realize that even a small cut in your credit card’s annual percentage rate can shorten the amount of time it takes for you to become debt-free.

Consider a credit card with a $10,000 balance that’s charging 25% annually. All else being equal, that credit card balance will cost you $2,500 in interest over the coming year. If you could get your interest rate on that credit card lowered from 25% to 15%, this would lead to an annual savings of $1,000, which you could put toward paying down your debt further. A lower interest rate can make a huge difference in how long it takes to become debt-free.

Though this prospect may sound too good to be true, it isn’t. If you can get the right person at the credit card company on the phone, you can often negotiate the APR down to a lower rate. Even better, there is no risk in asking. Unlike some other balance-reduction techniques, such as debt settlement, simply requesting a reduction in your APR does not show up on your , nor does it require hiring a professional to help.

Many people are surprised by how easy it can be to get a rate reduction.

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If You’re Denied Try Again

Receiving a denial from one customer service representative isn’t necessarily the final word. It’s worth calling again later and speaking to someone else who might make a different decision. If you’ve got multiple credit cards, try this with each one. You’ll probably have the best luck with issuers you have a longstanding positive relationship with.

If you’ve tried a few times and still haven’t had any luck, you can ask for a temporary decrease in your interest rate. Credit cards often have promotional offers that come with a lower interest rate for six or 12 months.

Finally, if you can’t manage to get a lower rate on any of your cards, it might be time to throw in the towel for now, work on improving your credit score, then try again in a few months with your increased score.

Consolidate Your Debt With A 0% Balance Transfer Card

How to Lower Your Credit Card Interest Rate

If you owe more than you can pay off in the next few months, signing up for a balance transfer card may be a wise move. When you transfer a balance, you move your debt from one card to another, usually one with a 0% interest rate for 12 to 18 months.

Most cards will charge around 3% of your balance to move your debt, although a few cards have no such fee or waive it for a short time. Getting approved typically requires good or excellent credit. And you cant transfer debt among cards from the same issuer from one Chase card to another Chase card, for example.

If you use a balance transfer, make a plan to pay off your credit card debt before the 0% introductory rate expires, so you can avoid paying any interest.

» MORE:NerdWallet’s best balance transfer cards

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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.

Check Out: Small Personal Loans: Compare Top Lenders Today

How To Use Credit Interest

If you want to avoid paying any interest, Dvorkin says you should pay off your balance in full each month. As long as you pay off the balance before the end of your grace period, no interest charges apply. The grace period is usually between 21 and 27 days. Credit card companies must mail your statement earlier, so you have time to take advance of the grace period. You can usually find the grace period listed on your credit card agreement.

Even if a credit card has no grace period, you can still use the card interest-free. Simply pay off the balance in-full by the due date. If you do this every month, interest charges never apply.

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Why It Doesnt Matter If Your Credit Card Interest Rate Is 20% Or 80%

Its simple: I never carry a balance on my credit card and neither should you. When it comes to making purchases, if I cant pay it off at the end of the month, I dont buy it.

Lets say you have a $10,000 balance on your credit card and you pay the minimum amount, which is around 2.5% every month. How much will it actually cost you? The answer is shocking. Get ready!

If you only paid the minimum on your $10,000 balance, it would take you 452 months and cost you over $19,000 in interest alone.

In other words, youd pay around $30,000 for a $10,000 balance.

Thats if you just pay the minimum monthly payment. How about if you pay the same amount every month so that you pay down the balance faster over time?

Lets take the same $10,000 balance and pay $250 off every month.

It will cost you more than $6,000 in interest and take you 67 months to pay off the balance. Even if you dont buy another thing in that time!

This is why credit card companies are so incredibly profitable, especially with young people who dont know any better.

The point is pretty obvious:

  • Dont carry a balance .
  • Pay the maximum possible on your balance every time.
  • If you cant pay off a purchase by the end of the month, dont buy it.
  • But Ramit, people say, what about homes and college and cars? How can I pay that off in one month? Yes, true, those very expensive purchases necessitate some kind of longer-term loan. But not with your credit card.

    Consider A Balance Transfer Card

    How to lower your credit card interest rate

    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.

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    Why Credit Card Interest Rates Change

    You can check out our Types of Interest Rates article for a more detailed discussion of credit card interest rate changes, but its important to touch on them briefly here as well because they provide the framework necessary to understand your rights and strategies when it comes to getting a lower interest rate. So, here are a few of the most common reasons that interest rates change:

    • Rates Arent Always Fixed: Variable interest rates change in concurrence with the Prime Rate.
    • Many credit cards offer lower interest rates for the first few months before a regular APR kicks in whether its on balance transfers, new purchases, or both.
    • For Future Transaction, They Just Have to Warn Us: Credit card companies have the right to raise your interest rates on future purchases for any reason, provided they give you 45-days notice of the change taking effect.
    • Rates Rise When We Screw Up: Creditors can begin applying a penalty interest rate to your entire balance if you become 60 days late on a payment.

    Requesting A Lower Rate

    There are several things you can do to alleviate your credit card debt before it becomes an even larger burden. If you have a high interest rate that is making repayment difficult, one option to consider is requesting a lower rate from your lender. Credit card interest rates arent necessarily set in stone, so you may get a lower rate just by asking. A poll found that almost two-thirds of cardholders succeed this way.

    If your financial situation has improved since you opened the card but your interest rate hasnt dropped, you may have a good case for a rate reduction. A history of regular use of the card and on-time payments also works in your favor.

    Before you make the call, gather information that supports your request. Be sure the person youre speaking to has the authority to lower your rateyou may need to ask to speak with a supervisor. Finally, if your lender agrees to a lower rate, ask for confirmation in writing and the date you should expect to receive it.

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    Ways To Reduce Credit Card Interest

    Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.

    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.

    Negotiating Your Interest Rate

    How to Lower Your Credit Card Interest Rate &  Save Money ...

    The shortest route to a lower credit card interest rate may be to simply ask. Credit card companies see it as being less costly to grant a rate cut than it is to lose a customer to the competition. Keeping good customers in place is easier and cheaper than acquiring new customers, so the credit card issuer may be ready to deal.

    In short, you dont need to have one of those fancy metal credit cards to throw your weight around in negotiations. However, to improve your chances of success, you should do your homework and understand what factors go into the card issuers decision on whether to approve a rate cut. These are the key factors considered:

    • How long you have been a cardholder
    • The credit limit on the card
    • Your credit balance in relation to the credit limit
    • Your credit balances on all your cards in relation to their credit limits
    • Your payment history with special attention to any late payments

    Before you call with your request, you should check your credit reports. Unless you have any problems with past payments, your credit history should be worthy of an approval. Being a long-term cardholder can also give you a little more leverage. If, however, your are too high, that may be a red flag for the issuer.

    Your call to customer service should go something like this:

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    Be Careful How You Use Your Cards

    The information below applies to all your credit cards:

    • Make at least the minimum repayment every month, even if you have a 0% deal. Otherwise, youll pay penalties and could lose your 0% deal. But pay as much as you can to stop the debts mounting up.
    • Set up a Direct Debit to make sure you never miss a payment. You can set it up for any amount you want, but make sure its for more than the minimum repayment.
    • Check for any important changes in every statement and letter your lender sends you, such as an increase in your interest rate. Also check your statements to make sure all the spending is definitely yours.
    • Dont use your card for cash withdrawals or credit card cheques. Youll be charged fees and higher interest for the whole period until you pay it off.
    • If you have a 0% balance transfer credit card, avoid spending on it. Any purchases you make will usually not be included in the 0% deal offer. So youll be paying interest on those purchases if you dont pay them off in full by the end of the month.

    Want To Get Out Of Debt Learn How To Pay Less Interest On Your Credit Cards

    Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

    One of the great misconceptions about debt is that the cards themselves are bad. The truth is, they’re really not. Rather, it’s the effect of double-digit interest rates that make them so toxic to our personal finances. The exponential growth of an account balance quickly causes purchases we thought we’d easily pay off over a few months to grow into something that seems like it will take years to knock out.

    Luckily, ridiculously high-interest rates don’t have to be part of your credit card experience. It’s possible to negotiate to get a lower interest rate if you know whom to talk to and what strings to pull. If you can do a little bit of work to get inside your credit card company’s head and are willing to spend 15 to 20 minutes on the phone, there’s at least a chance you can save yourself some dollars over the next year.

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    Use The Debt Avalanche Method

    If youâre juggling debt on multiple credit cards and loans, it can be tough to decide which to tackle first. Enter the debt avalanche method.

    The debt avalanche method advocates that you should focus on the debt with the highest interest rate first regardless of the size of the balance. For example, letâs say you have: $1,500 in debt on Credit Card A with 19.99% interest, $3,000 on Credit Card B with 15.99% interest, and $20,000 in student debt at 4%.

    With the debt avalanche method, you would pay the minimum amount required for each debt but any additional payments would go to the highest interest debt first. In this example, it would be Credit Card A, then Credit Card B, and finally your student debt. By honing in on the highest interest debt, you will pay the least amount of interest in the long run.

    If you carry debt on two credit cards with the same interest rate, a helpful strategy to get things started would be to use the debt snowball method, which prioritizes your smallest debt first while making at least the minimum payment on everything else. The idea is that the sense of accomplishment from eliminating your smallest balance will keep you motivated to pay off the rest of your debt.

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