What Is Credit Card Interest
As the Consumer Financial Protection Bureau explains, interest is the cost of borrowing money from a lender. Interest is typically shown as an annual percentage rate, or APR. For credit cards, the APR and interest rate are usually the same.
When you make a purchase using your credit card, your lender pays the merchant upfront for you. And you eventually pay back your lender by paying your bill. When you pay your bill, you pay back the charge and any interest that has accrued and been applied to the account.
Ask About Your Lenders Financial Hardship Policy
You dont necessarily need a good credit score to convince your lender to give you a break. Your credit card issuer may be willing to lower your interest rate or work out some kind of alternative repayment plan if you can demonstrate that you are genuinely going through financial hardship, maybe due to a job loss or medical issue.
Check with your lender to see what kind of policies it offers and write down why specifically you are having trouble paying your debt. Lenders dont want you to default on your loan and so they may be more willing than you think to work out a plan.
You may also want to consider enlisting the help of a nonprofit who can help you go over your financial situation and give you some advice for requesting a lower rate.
You can contact a certified credit counselor at:
If youre really having a hard time paying your bills and decide to enter a formal debt management plan, a credit counselor will even negotiate with lenders for you. However, unlike basic credit counseling, this service generally requires a fee.
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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What To Do After A Decision
If you are able to get your rate lowered, it’s time to supercharge your journey to eliminating debt. First, try to get the credit card company’s agreement to lower your rate, as well as the related fine print, in writing. Plenty of people get a promise of some kind from a customer service rep only to discover that the rates have not been changed. Additionally, a credit card company’s agreement to lower rates can be loaded with conditions that will raise your rate as high as it was or even higher than before if you fail to pay your bill on time or keep your balance under the .
Second, make sure the money you save on interest goes toward reducing your credit card or other debt. This isn’t the time to go on a shopping spree or blow off some steam on a vacation with the extra money you’re saving. Continue making payments in the same amount you were making before your rate was reduced.
If your credit card company says no, ask them about their procedures for rate reductions. Also, see if there is a time period for consideration or reconsideration. Ultimately, if better rates and/or terms are offered somewhere else, it may be best to take advantage of them, potentially through balance transfer promotions.
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Who Can Qualify For A Lower Credit Card Rate
If you have an older credit card account and have raised your credit score over time, you may qualify for a lower interest rate! Your credit score has a major impact on your ability to get a reduced credit card interest rate. Lenders want to see a positive credit history since your credit score measures your creditworthiness, or your history with debt repayments. If you dont have a good credit card repayment history, you might not be able to convince your lender to reduce your interest rate.
What To Do If Youre Denied A Lower Apr
If your credit card company denies your request, ask the issuer to provide an explanation. You can also ask what would make you better qualified for a lower rate, to have a clear understanding of what you need to do to improve your chances in the future.
If youre facing a period of hardship and arent sure how to overcome your debt, you may also consider speaking with a financial counselor to determine the best options for debt payoff based on your individual situation. There are alternative strategies, such as consolidation loans and equity loans to help pay off your debt based on your personal circumstances and finances.
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Make Your Payments In Full And On Time
Always make your payments in full and on time . Credit card companies can raise your rates if you fail to pay on time. They will be less likely to lower your interest rates if this is the case as well. That’s why it’s important to consistently pay your bills on time and in full. If you are considered a credit risk, you will not qualify for a lower interest rate.
Putting it simply, the steps for lowering your rate are very similar to that of raising your credit score. For example, you should focus on making your payments on time and work on getting your balance lower so that you are not too near the credit limit.
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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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.
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Dos And Donts Of Negotiating Credit Card Interest Rates
Lets take a look at the numbers. If you have $5,000 in credit card debt with a fixed interest rate of 18%, youll end up paying more than $2,900 in interest alone if you only submit the minimum payment each month.
Now, lets say your interest rate is reduced to 13%. In this same scenario, youd pay about $1,800 in interest, which is a difference of $1,100. Better yet, if you have an interest rate of 10%, youll end up paying a little more than $1,200, a difference of $1,700. Thats a significant savings for any household.
Whenever possible, we recommend paying more than the minimum monthly payment. Yet this example gives you an idea of how a few percentage points can impact your total debt amount. We cant guarantee every consumer will be able to lower their interest rates with a phone call, but its certainly worth a shot with thousands of dollars on the line.
In this part of the Take an Interest in Your Interest series, were offering valuable dos and donts for negotiating credit card interest rates.
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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.
Responsible Use Is Critical
Its also important to use your student credit card responsibly. While some students use their cards to pay for basic necessities or emergencies, maxing out your credit limit or failing to make payments in a timely manner can lead to high interest costs, late fees, a negative impact to your credit score and more. If you want to maintain good credit and make your student credit card work for you, make sure you handle your finances responsibly.
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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, youâll have access to these ultra-low rates and can pay down your debt considerably faster.
Think of it like youâre using one credit card to pay off another.
Hereâs 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|
|Interest owed after 10 months||$0||$309|
Once the promotional period ends, the interest rate on the balance transfer credit card will go back to its normal levels. So, youâll want to look into both the balance transfer cardâs promotional rate as well as its regular interest rate.
Foreign Transaction Fee Waivers
For anyone who travels outside the US, having a credit card with no foreign transaction fee can make a huge difference in the cost of their trip. If you have a credit card you feel particularly loyal to but that charges foreign transaction fees, you might consider asking them to waive those fees before your next journey.
Up from 53% of the time last year, cardholders making such a request this year found their demands met 58% of the time. While that is barely better than being successful half of the time, that statistic indicates that such requests are infinitely more successful than those who dont make the request in the first place.
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How I Got 3 Major Credit Card Issuers To Lower My Interest Rates
If youre concerned about the possibility of carrying a credit card balance during the coronavirus pandemic, you may be able to lower your interest rates by contacting your card issuers right now.
I reached out to five major credit card companies to see if they would lower my interest rates. Ill share the results in this article.
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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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.
Consider A Balance Transfer
Before your balances build up, consider looking for a credit card with a 0% or low promotional rate on balance transfers. Yes, opening a new card might impact your credit score, and there may be a balance fee involved, but in the long run, your score and your own financial well-being may benefit from nipping that interest rate in the bud.
Steps to performing a balance transfer:
Apply for a balance transfer credit card with a zero or low-interest promotional period. Then, don’t use the card for purchases. Instead you should work out how much you have to pay each month so you completely pay off your transferred balance before the zero or lower interest rate period ends. If you don’t pay off your entire balance before the promotional period ends, your remaining balance will likely have a higher APR when your promotional period ends.
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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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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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