How To Lower Your Credit Card Interest Rate In 5 Easy Steps
Here are some ways to accelerate debt payoff and score a lower credit card interest rate.
can be crippling to your financial wellness, and once youve racked up a large balance, it may feel like theres no way out. If youve ever felt this way, youre not alone.
On average, Americans with carry $6,194 in debt, according to a report by Experian. Some areas, especially southern states, carry a higher average;debt burden than others. With average interest rates hovering around 17%, low minimum payments and no set repayment timeline, such a balance could take decades to pay off.
If youre serious about getting rid of your debt, scoring a lower credit card interest rate could help you save money and accelerate your debt payoff. Here are some ways to make that happen.
1. Call your credit card company
While you may not be able to get a permanent reduction in your credit card interest rate this way, you may be able to negotiate for a lower rate temporarilywhich can come in handy if youre just looking to pay off some holiday debt.
Start by politely explaining your reasoning for asking for a lower interest rate. If youve always made your payments on time, point out your history of being a good customer. It can also help if your income has increased or your credit score has improved since you first opened the account.
4. Improve your credit
What Is A Good Apr For A Credit Card
As of April 2021, the average interest rate for a credit card is just over 16%. But the average card APR can differ from what a consumer might consider a good APR. For instance, some low-interest credit cards advertise minimum APRs just below 12% and, in rarer instances, less than 10%.
But a good APR is one that you can afford if you must carry a balance on your credit card. On the other hand, an exorbitant APR can bust your budget and prevent you from getting out of debt in a timely manner, especially if you have a lot of it.
Have A Strategy Before You Call
When you’ve compiled your evidence and are ready to make your case, start calling your card issuers one by one, using the customer service number printed on your card. There’s no need to plan every word you’ll say, but it’s a good idea to have a general outline of what to say and do:
- Give the customer service rep a brief recap of your history with the company: how many years you’ve been a cardholder, how long you’ve been making monthly on-time payments, and so on. Tell them you’re seeking an interest rate reduction, and briefly state the reasons you think you deserve one .
- If the rep tells you they can’t change your interest rate, ask to speak to a supervisor who might have greater authority. Be polite but firm and persistent. Negotiating your interest rate is a perfectly reasonable thing to do.
- If you’re told a rate cut isn’t possible, consider asking for a temporary reduction. This can be an especially effective and helpful tactic if you’re seeking relief from a financial setback.
- Consider telling the issuer you’ll cancel the card if they’re unwilling to work with youbut only if you’re prepared to follow through on that promise. Note that the account will need to be paid in full before you close it, so this approach may ring hollow if you have a high balance on the card. Also keep in mind that cancelling a card reduces your total borrowing limit and will increase your overall utilization if you have outstanding balances on any other cards.
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The Best Advice: Avoid Credit Card Interest Altogether
The best way to avoid high interest rates is to eliminate paying interest in the first place. Get into the habit of paying your credit card balances off every month, so you never have to worry about how high your interest rate is. Enroll in automatic payments to pay your balance in full each month or make payments each time you use your card.;
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Pros Of Balance Transfer Credit Cards
- 0% APR: Some balance transfer credit cards come with a 0% APR introductory offer, which means you can avoid paying interest if you pay off your balance before this period ends.
- Could help build your credit: If you make all of your payments on time, you might see your credit improve which could help you qualify for better rates in the future.
- Rewards or perks: Depending on the card you choose, you might have access to various rewards or perks, such as cash back or points.
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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.
How To Reduce Credit Card Interest
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.
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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.
Consolidate Your Debt With A 0% Balance Transfer Card
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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How To Negotiate A Lower Credit Card Rate
Lets get something straight: credit cards are a useful tool in your wallet.
They offer fraud protection on purchases, rewards such as points or cash back, and the ability to purchase something interest-free for 30 days. You start paying interest after those 30 days are up. And the interest is high; most credit card interest rates are between 9.9% and 30%. If you pay off your credit card every month, maybe the high interest rate isnt a concern. If you dont, youll be paying a lot of interest over a lot of years.
Lets assume you have $1,500 on your credit card with an interest rate of 19% and you pay the minimum of $10 a month. It will take you almost 13 years to pay off that original $1,500, which will include an extra $1,448 in interest. Thats double the original amount on the credit card.
Fortunately, most Canadians pay off their credit card every month. For those who cant and for those who want a lower rate, there are ways to pay less interest while youre paying off your credit card.
Do the research
Knowledge is power so before you ask for a lower rate, know whats out there and know your credit score. Youll need both.
Start with your credit history and your credit score. You can get a copy from Equifax or TransUnion with minimal fees. This will provide a breakdown of your credit history.
Once youve done your research, its time to get a lower rate.
Make the call
Make the switch
How A Credit Score Influences Your Interest Rate
Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina. He is a CFP, registered investment advisor, and he owns his own financial advisory firm. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
The interest rate that you are offered by a lender has a big impact on the cost of borrowing money.
A lower interest rate makes it less expensive to take out a loan or use a credit card, because theres less interest added to your monthly payment. Lower interest rates are highly sought after because you pay less money to whoever has loaned you money.
Interest rates on credit cards and loans arent set arbitrarily. Banks use your to help them set your interest rates.
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How To Ask For A Lower Apr
Before you make the call, come armed with ammunition in the form of other offers youve seen at a site like LendingTree.com or that you may have received in your snail mail. Take that offer and use it to frame the conversation:;
Ive been a good customer of yours for a long time and I like my card. However, the APR is 25% and Ive just been offered one with a 19% APR. Would you be able to match it?;
As survey data shows, theyll likely be willing to work with you, at least to some degree.
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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.
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.
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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 CNBC 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 18 months on balance transfers .;
Balance Transfer Credit Card
If you dont have a lot of debt but still want to save on interest, a balance transfer credit card may be right for you.
Many credit card companies offer low- or no-interest balance transfer deals as introductory offers or to entice you to use a card thats remained idle for a while. These promotional offers generally last 12 to 18 months.
If you can land a 0% interest balance transfer offer with a high enough credit limit, you can move your balance from a high-interest credit card to the balance transfer card and pay it off throughout the promotion without paying a dime of interest.
While there may be no interest during the promotional period, there is often a 3% to 5% balance transfer fee. The balance transfer card issuer will calculate this fee based on the amount you transferred to it and add it to your balance. So, if you transfer $1,000 onto a balance transfer credit card, your balance after the fee would be between $1,030 and $1,050.
With a 0% intro APR balance transfer card, you can easily determine how much you need to pay per month to pay off your debt before interest starts accruing again. Simply divide the balance, including the balance transfer fee, by the number of months in the promotion.
For example, if you transferred $1,000 to a 0% interest balance transfer card with a 5% balance transfer fee and a 12-month promotional period, youd divide $1,050 by 12 to determine you must pay $87.50 per month to pay it off before interest fees begin to accrue.
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When Is The Best Time To Use A Low Interest Credit Card
We know that low interest credit cards are helpful when you are carrying a balance on your credit card, but they are also great for making everyday purchases or for emergency expenses. With a low interest credit card, you will pay less interest than you would with a regular credit card and youâll have the security of using the card if you need to. While we donât recommend getting cash advances, many low interest credit cards also charge a lower fee compared to other cards. Many people also use their low interest credit cards to perform balance transfers, when they transfer some or all of their balances from one card to a new low interest credit card; this allows them to have only one monthly payment at a much lower interest rate.