You Have A Variable Apr And The Prime Rate Is Going Up
Most credit cards have a variable APR, meaning that the interest rate on the card is tied to the direction of interest rates in general. Most credit card companies set rates linked to the prime rate, which is the rate banks charge their biggest, best customers for loans. For example, if your rate is “prime plus 15%,” and the prime rate is 4.5%, then your rate is 19.5%.
The prime rate rises and falls based on decisions made by the Federal Reserve. If the prime rate rises, the interest rate on your credit card will rise, too. This is another situation in which your issuer is not required to give you 45 days’ notice of a change to your APR.
Theres not much you can do about an increase in the prime rate. Its not something your issuer has control over, and it will affect almost all credit cards on the market. But if youre paying your balance in full every month and therefore not paying interest you probably wont even notice the change.
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.
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.
You May Like: What Gas Stations Accept Discount Tire Credit Card
Option #: Ask Your Card Issuer For A Reduction
It almost sounds too good to be true, but you can sometimes score a lower interest rate on a credit card simply by asking for one. Before you pick up the phone to give your card issuer a call, it can help to do a little prep work up front.
You should also be realistic with your expectations. Card issuers are under no obligation to change the terms of your account. And, youre under no obligation to continue being a customer. Your business is portable and you should always remember that.
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.
Don’t Miss: Navy Federal Gift Card Not Working
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.
Ask For A Lower Apr And You May Get One
A lower APR is a request that many card issuers will grant to customers. CreditCards.com research released in March 2016 shows that while relatively few ask, more than 3 in 4 cardholders who ask for a lower interest rate get it.
The first step is to make sure you know your own and , says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. If youve been a good customer, be prepared to demonstrate that by laying out how long youve had the card, how much you charge each month and your history of timely payments.
Its your money, and its worth fighting for, Cunningham said. I would definitely bother to make the call.
For those who may be wondering what to say, heres an example of an effective conversation between a responsible credit card user and his or her card company.
You May Like: Apply Best Buy Credit Card
Ask To Have The Card Interest Rate Lowered
Once you are connected with a representative, this is the time to begin negotiating your rate. You may want to mention your good payment history, your loyalty to the company, or a high , if you have one.
You should be polite when asking for an interest rate change. If you yell or become belligerent, then the customer service representative will not be as willing to help you. Politeness goes a long way in situations like these, though it is important to be persistent.
Keep in mind that you may run into difficulties getting a reduced rate if you have a history of late payments, a low credit score, or a lot of outstanding debt.
Your credit card company wants to continue to make money off of your account, so generally, it will not bring your interest rate down to zero. However, it probably also wants to prevent you from defaulting, so it may decrease your interest rate if you make a good case.
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.
Recommended Reading: Close Chase Card
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 â either on your online app or with a customer service representative â if youâre eligible.
If youâre not eligible or your card issuer doesnât 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:
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
You May Like: What Gas Stations Take Discount Tire Credit Card
You Have Promotional Rate That’s Ending
If you took advantage of a 0% APR offer to transfer debt or finance a big purchase, you probably saved a bundle during the interest-free period. But a 0% or other promotional rate doesn’t last forever. Promotional rates typically last six to 12 months. After that, your issuer is free to raise your rate. Your new rate will depend on multiple factors, but your credit score will be a big one.
The Card Act specifies that issuers must give you at least 45 days’ notice before making a major change to the terms of your account but an expiring promotion is exempt from this rule. It will be up to you to keep track of when your 0% period is up, so make it a priority to pay off your balance before interest kicks in.
Check Your Payment History
Look over monthly statements. Familiarize yourself with what you pay and if you pay on time. You want to have a discussion from a position of knowledge, rather than have the credit card company bring up a payment history youre not aware of. Hardships like unemployment, divorce, an illness, or something else that caused a financial setback and led to missing payments are things to bring up. Stress that youre committed to being a good customer and paying on time.
Don’t Miss: Make A Payment Best Buy Card
Understanding Your Credit Card Company
When you owe a large sum of money to a credit card company, it is easy to begin to fear talking to them. Perhaps people think they’re going to get yelled at, shamed about the situation, or possibly penalized. The reality is that are in business to make a profit, and their biggest profit is made from charging interest to people with unpaid balances. The bigger the balance, the more money the credit card company is able to make. In other words, if you are carrying a large balance, you are one of their best customers. The credit card company should love you and want you to stick around to keep paying interest. This positioning is something you can use in your favor.
Most credit card companies don’t want to lose you or your balance, especially if you are paying a rate that’s double or triple the historical rate of return in the stock market. In fact, many credit card companies will go to great lengths to keep you happy and keep you spending, lest they go out of business. This fact is your most important piece of leverage when it comes to getting your APR lowered.
Be Polite And Patient
Dvorkin has spoken with many clients regarding debt and other financial situations. And one thing hes noticed is that many people are stressed and impatient. Some people are even vindictive. Dont be that person. If you want assistance, be polite and courteous. A cool and collected manner isnt guaranteed to help you reach your goal. But being nasty or abrupt will definitely damage your chances.
Don’t Miss: How To Apply For Best Buy Credit Card
Take Out A Personal Loan
Another option is taking out a personal loan to pay off your credit card debt a process known as debt consolidation. Personal loans often have lower credit card interest rates than credit cards, which means you could save money on interest charges while repaying your debt.
If youre struggling to get approved, consider applying with a cosigner. Not all lenders allow cosigners on personal loans, but some do. Even if you dont need a cosigner to qualify, having one could get you a lower interest rate than youd get on your own.
If you decide to take out a personal loan, its important to think about how much that loan will cost you. This way, you can be prepared for any added expenses. You can estimate how much youll pay for a loan using our personal loan calculator below.
Enter your loan information to calculate how much you could pay
Checking rates wont affect your credit score.
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.
You May Like: My Best Buy Credit Card Citibank
Ask About Qualifying For A Lower Interest Rate
If you are unsuccessful in getting a lower interest rate by asking, you should seek more information. If you’re being denied because of late payments, ask the representative what you can do to qualify for a lower interest rate in the future. You may simply need to wait longer and make payments on time in order to become eligible.
You also can try to call again in a few weeks. It can’t hurt to ask to be reconsidered. You may want to mention that you have a 0% or other low-interest card that you can transfer the money to.
Learn About The Rates
Before applying for a lower interest rate, the consumer should get a copy of their free credit report and learn a little about the rates different companies offer.
They may have been targeted by many credit card companies offering lower rates, no annual fees and special introductory offers for the first six months.
The consumer can make a strong case for their interest to be reduced if their credit score is good, and they have made regular payments on their debt.
Customers have experienced a wide variety of responses from credit card companies. They have been told to go ahead and change companies, that they have no facility for lower interest rates or that they will not reduce the rate.
Don’t Miss: Cabelas Master Card
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.
How To Lower Your Credit Card Interest Rate
If you carry a balance on your credit card, a higher interest rate, also called an annual percentage rate , can make it harder to put a dent in your debt. When you make payments on a high-APR card, more of your money goes toward interest, which means it takes longer to chip away at the principal balance.
Negotiating a lower credit card interest rate is one strategy to get out of debt. It can also offer breathing room if you’re dealing with a financial emergency that affects your ability to cover all your bills. Here’s how to do it:
1. Start With the Card You’ve Had the Longest
It’s a good idea to ask for lower rates on all your credit cards if you have more than one. But prioritize the issuer you’ve had a card with the longest. Particularly if you consistently pay your credit card bill by the due date, as that track record should give you some leverage.
Let the issuer know why you’re seeking a rate reduction: Perhaps you’re facing a new financial burden such as job loss, a salary cut or unexpected medical bills. Maybe you’ve recently worked on building your credit, and you’d like to focus now on paying off debt. Or you might have received offers in the mail or online for cards with lower rates than you currently have.
Mention that you’ve made on-time payments for several years and ask whether the issuer would consider reducing your interest rate as a way to reward your loyalty and reliability.
2. Ask for a Temporary Break if Necessary
3. Try Again