Ask For A Lower Interest Rate From Your Credit Card Issuer
In the wake of COVID-19, many banks are offering temporary credit card payment deferral programs along with reductions in interest rates. Check with your bank either on your online app or with a customer service representative if youre eligible.
If youre not eligible or your card issuer doesnt offer such programs, consider picking up the phone and trying to negotiate for a lower rate. As the saying goes, it never hurts to ask.
Here are some quick tips to help you in the negotiation process:
Consolidate Your Debt Onto A Balance Transfer Credit Card
One of the best ways to access lower interest rates is by signing up for a balance transfer credit card and consolidating your debt. The idea of getting a new credit card may sound like a weird solution but hear me out.
The best balance transfer credit cards come with rock-bottom promotional interest rates for a limited time . By moving your debt on your current credit card to a balance transfer card, youll have access to these ultra-low rates and can pay down your debt considerably faster.
Think of it like youre using one credit card to pay off another.
Heres a simplified example of what would happen if you kept a $3,000 debt on a typical credit card versus if you moved it over to a balance transfer card with a 0% offer for ten months, while making payments of $300 each month:
|Balance transfer card|
Some additional things to know about balance transfers: youll usually need to pay a flat transfer fee upfront and you can only transfer balances between credit cards from different banks.
How To Avoid Paying Interest
There is one tried and true method for avoiding credit card interest altogether. If you only make purchases you can afford to pay off and you pay your credit card bill in its entirety every month, you will never get charged a dime in interest payments. Which means you will never spend more than you need to on your purchases and you wont damage your credit score by making late payments.
Most people know it takes discipline and financial planning to get into a position where you are entirely free of credit card debt. However, the work it takes to get there can be well worth it. Since many credit cards dont have an annual fee, its possible to use credit cards to your advantage and never pay a dime for the privilege.
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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.
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|
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Debt Consolidation Loans Beat Credit Card Rates
Personal loans, also known as debt consolidation loans, are another strategy to lower your credit card interest rate. Banks offer lower rates on personal loans than on credit cards, but again, this will depend on your credit score.
If you can qualify for a loan, you can use the money to pay off your credit card balances. That leaves with you just the debt consolidation loan to pay off.
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
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Why Might This Happen
If you borrow money on a credit card the credit is:
- unsecured because its not linked to your property and
- open ended because the account is not set to last for a specific length of time.
This means that credit card providers face more risk than for other types of credit products, such as personal loans and mortgages. Also, your financial circumstances can change over time, which means there may be a higher risk that you will not be able to pay back the money you have borrowed.
Changing the interest rate allows a card provider to respond to:
- changes in the economy
- the cost of providing credit and
- their opinion of your financial circumstances.
If a card provider couldnt adjust interest rates in this way, it might have to take your credit card away, or you may have to pay new charges.
What Is Considered A High Apr
A good APR for a credit card is 14% and below. Thats roughly the average APR among credit card offers for people with excellent credit. And a great APR for a credit card is 0%. The right 0% credit card could help you avoid interest entirely on big-ticket purchases or reduce the cost of existing debt.
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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.
Explore Options For Your Credit Card Payoff
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Capital One does not provide, endorse, or guarantee any third-party product, service, information or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.
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Apply For A Balance Transfer Card
One way to pay less in interest for a limited time is to apply for a balance transfer credit card, most of which let you secure a 0 percent intro APR on transferred balances for at least 12 to 18 months. Just keep in mind that balance transfer fees are typically required for these offers, so you wont get access to that 0 percent APR for free.
With a top balance transfer card like the Citi® Double Cash Card, for example, you get a 0 percent APR on balance transfers for 18 months followed by a variable APR of 13.99 percent to 23.99 percent. However, a 3 percent balance transfer fee applies. That may not sound like a lot, but a 3 percent balance transfer fee on $10,000 in transferred debt would tack on $300 to your balance right away.
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.
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Negotiating A Lower Interest Rate With A Credit Card Company
Negotiating a lower interest rate is almost an art form. It takes finesse, knowledge and patience. But its worth mastering this art form, especially since the reward is a lower interest rate and monthly payment. It can also reduce the amount of time it takes for you to pay off the creditor.
Dvorkin has mastered this art and provided us with these 10 top tips.
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.
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Negotiating With Your Credit Card Company
Take these steps to request a lower interest rate on your credit cards:
- Collect Your Financial Information: Find out your credit score and interest rate. You can order a free annual credit reportif you need to. It helps your case if you have a solid payment history.
- Check for Competitive Offers: Its a good idea to do your homework on competitive offers. If you are getting proposals in the mail that offer a lower rate, thats something to share with your credit card company when you negotiate.
- This number should be on the back of your credit card. The reason you are calling is to request a lower interest rate. The customer service rep should be able to direct you to the proper department. Be sure to ask for their name and direct phone number so you can reach them again if the call gets disconnected.
- Make Your Request: The first point of contact may not have the power to change your interest rates. If they dont, ask to talk to someone who has more authority to make these decisions. Discuss how youve been a good customer and, if you have a stellar payment history, be sure to stress that. Be polite, while still making a good case for why you should receive a lower interest rate. Heres where youd include any competing offer information you have gathered.
What To Do If Negotiating Lower Credit Card Interest Rates Doesnt Work
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:
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Speak With A Supervisor
If you speak with a representative thats not cooperative, simply ask for a manager. Customer service representatives may not have the power to modify an account. But their direct supervisor probably will, especially if you have a sensible reason for lowering your interest rate. Dvorkin says, If youre denied on your first try, hang up and try again at a later date. Some reps are more responsive than others but its essential to ask for a supervisor.