Credit cards, without a doubt, are a real cash cow for the banks – to the tune of $163 billion in 2016. Sometimes, this means that consumers get it in the neck: a combination of loose legal requirements, an easy application process, and vigorous advertising often combine to turn a credit card into a debt trap.
Especially when you’ve gotten in over your head and need to find a way to reduce those monthly payments, knowing how to lower your credit card interest rate becomes a survival skill. It seems to be a truism of the American financial system that when you’re in a hole, the hole just keeps getting deeper unless you take positive action. There is good news, however: even if you can’t negotiate credit card interest rates with your current bank, there are a couple of options open to you. Knowing what to do can give you some breathing space, during which time you should be able to restructure your financial situation and achieve long-term stability.
Table of Contents
- 1 Why Should I Lower My Credit Card Interest Rate?
- 2 Negotiating Lower Credit Card Interest Rates
- 3 How to Lower Your Credit Card Interest Rate: Step by Step
- 4 How to Lower Interest Rates on Credit Cards by Transferring Your Balance
- 5 How to Keep (and Improve) a Good Interest Rate Once You’ve Got It
- 6 Final Words
Why Should I Lower My Credit Card Interest Rate?
Most people’s long-term goal is to pay down their credit card balance, or at least reduce it to manageable proportions. Your minimum payment is usually the monthly interest plus 2 or 3 percent of the sum you owe. Doing the math, this means that paying down $20,000 on one or several cards goes like this:
The above assumes that you charge nothing new to your card(s); if you do, the cycle resets and you’re back where you started. Obviously, once you have a little knowledge on the subject of how to lower APR on credit cards, you have the option of spending significantly less each month. Even more importantly, you can choose to deposit more than the minimum and slash the amount you’ll end up paying the bank for the privilege of using their services.
Negotiating Lower Credit Card Interest Rates
Credit cards aren’t really for everyone; using one effectively requires a little bit of self-control, while anyone who’s already struggling with their bills and loan repayments should probably steer clear of taking on additional debt. Used with care, though, they have a couple of huge advantages: for one thing, they can help you through a temporary tight spot without having to apply for an additional line of credit.
On a more strategic level, using one to manage your day-to-day expenses is a good way of improving your credit score over time – even the best prepaid debit cards can’t make the same claim. This, of course, implies that you’ll be paying a small amount of interest even if you pay off your balance each month. Knowing how to get credit card company to lower your interest rate will help you here.
When applying for a new card, or phoning up your bank to haggle, keep the following points in mind:
- Research matters. A little bit of online research should quickly show you whether competing companies can beat your current rate. Mentioning this puts the ball in your bank’s court; if they can’t match a better offer, they should be able to give reasons for it.
- Be honest and respectful. Customer service representatives are usually under pressure to clear as many calls as possible, even if this means not covering every possible base. Being polite and patient costs nothing and may encourage them to go the extra mile for you, or at least spell out what you can do in order to qualify for a cheaper APR.
- Be assertive but also flexible. If you’re a long-time customer of the bank and have a solid reason to request better terms, you can most certainly ask to speak to a supervisor, especially when visiting a branch in person. Even so, banks tend to have some very rigid policies that can’t be overturned on a whim. If you don’t get what you ask for, simply asking “What can you do for me?” will often lead to possibilities you didn’t know existed
How to Lower Your Credit Card Interest Rate: Step by Step
Believe it or not, your bank can almost certainly give you a break on your credit card payments – most people who ask for a reduction in their interest rate get it. Why should a credit card company help you out, though, if you’re apparently happy to pay them more than you have to? Just maybe, it’s time to be the squeaky wheel and demand some grease.
The following can provide a kind of roadmap to doing so effectively:
- Look up your current APR (found on your monthly statement) and your credit score. You’ll also want to make a note of things like how long you’ve had your card and any other accounts with the same bank, any loans you’ve paid off since getting it and anything else that might affect your creditworthiness. As in any negotiation, the better you prepare, the better things will go.
- With this information in hand, phone your bank’s customer service line and ask to speak to someone authorized to lower credit card interest rates (you don’t want to go through the whole song and dance with someone who can’t help you). Clearly state that you think you deserve a lower APR and set out the reasons why.
- There’s a good chance that they’ll agree; if not, and you know that you can get a better deal elsewhere, communicate to them that you’d like to start the process of closing the account and paying off the remaining balance. This may or may not motivate them to meet you half way, but declaring that you’re willing to leave will often get you a better deal on anything from cheap phone plans to medical insurance. In any case, unless your only other options are credit cards for awful credit, you have no reason to stick around.
- Shop around for a better offer. The lowest APR you can qualify for is certainly important, but also keep an eye on factors like rewards programs, fees, and credit limits. It’s rarely a bad idea to find three competitive options and compare them side by side; also watch out for special introductory offers as described in the next section.
How to Lower Interest Rates on Credit Cards by Transferring Your Balance
Remember: the bank always has the right to refuse to give you a better rate. For your part, you have the option of taking your business elsewhere, giving you leverage. Especially if you’re treading water financially, doing so may give you a valuable out and help you get back on an even keel. Don’t make the mistake of thinking your current credit card company values your loyalty more than others value your new business.
This choice is also available when you notice your APR climbing. By law, credit card companies normally have to give you at least 45 days’ notice of any changes to your credit card agreement. This definitely includes those times when they, presumably while giggling and rubbing their hands with glee, decide to raise your interest rate. If this happens, you can ease the pressure on your paycheck by doing a balance transfer.
All you need to do is find a card that offers a cheaper APR or even 0 interest during its introductory stage and also accepts balance transfers. This process is very streamlined; at most you’ll have to sign some papers, get a routing number and perhaps spend a few minutes on the phone. You will sometimes have to accept a fee based on how much money you currently owe, which can range from zero to pretty steep, but you will also be able to consolidate debt from several cards into one. Assuming that you pay the resulting balance down as much as you can during the grace period, you’ll be breathing much easier when you start paying interest once again.
If you choose to go this route, keep in mind that canceling a credit card can affect your credit score for the worse. Even if you’re in a hurry, take the time to contact your bank and do things the right way. If your current card doesn’t charge annual fees, it may even be better just to clear the balance and keep it in a drawer somewhere.
How to Keep (and Improve) a Good Interest Rate Once You’ve Got It
When you get right down to it, there are few real shortcuts on how to lower credit card interest rates in the long run without improving your credit score as well as your reputation with your bank. Let’s see what the best national banks have to say on the subject:
- Chase makes the point that building good credit should be a priority for everyone from the moment they start working, or even before. They advise every young person to open a checking account as soon as possible and use this to automate paying bills where possible, which can avoid late payments severely dinging your credit rating.
- Bank of America explains that you should really only be using only 30% of your credit limit – any higher, and lenders will begin to see you as a credit risk. If you have multiple types of debt, including more than one credit card, they recommend making the minimum payment on all of them and put any and all spare cash towards paying off one at a time.
- Capital One reminds us that getting into arrears is often due to a lack of planning and control. Their advice includes looking at each line of your monthly statement instead of just the due amount. This isn’t much fun but can be a real eye-opener about your spending habits.
- American Express calls attention to the fact that paying down your credit card in full, but a day after you’re supposed to, still counts as a late payment. Fair or not, these have a major impact on your creditworthiness and will cause the bank to slap you with late fees. Amex, as well as most other companies, make it easy to avoid these by setting up automatic payments for either the minimum or full amounts each month, even if you have a mind like a sieve.
- Discover also talks about timing, but suggests another little trick that’s surprisingly useful: instead of waiting for the due date, why not pay as much as you can, as soon as you can? This can bring down your outstanding balance and hence jack up your credit rating at the bank as well as reporting services sooner than you think. Let’s see how paying two weeks early plays out on a typical credit card at 20% APR (remember that credit card debt is compounded daily, not weekly or monthly):
$150 more at the end of the year may not seem like all that much, but remember that this is money in your pocket for doing nothing more than writing a different day of the month on your automatic payment plan. In fact, if you keep a balance of about $5,000 on your card, this is equivalent to lowering credit card interest by about 2.5%
A credit card is ideally used to manage your cash flow from month to month, meaning that you should keep as low a balance on it as possible. Any outstanding amount costs you money; that’s a given. There is still some wiggle room, though: when you manage to reduce the interest rate on credit cards, you’ll be saving some money every month even without any effort, and these sums add up very quickly.
Frequently Asked Questions
24% APR ÷ 12 = 2% per month
24% APR ÷ 365 = 0.066% per day
American Express / APR / Bank of America / Capital One / Chase / Discover / interest rate
14 thoughts on “How to Lower Your Credit Card Interest Rate Without Breaking a Sweat”
That’s the biggest financial problem of last year. Hope in 2020 I’ll find the right decision
Of course, you’ll find it! I hope that our guidelines will help you. Also, feel free to contact us with any questions!
Such great info! Thank you very much for your work!!
Thanks a lot, Kolly!
Thanks for such a useful article. I’ll try to follow these tips to lower my credit card interest rate
Thank you and good luck!
I think that nothing will lower my credit card interest rate. I tried but…
I believe that you can! If not, contact us and we’ll try to help you!
So hard…really, is it even possible?
Sure! Just try!
I’m so sick of wasting cash on my unfair credit card interest rate! I’ll try your tricks to negotiate a better one first thing Monday.
People always apply for credit cards as if they’re free cash and end up generating debt because of fees and interest rates. Do your research in time people. Anyway this is a useful article!
Thank you so much!