How To Lower Your Credit Card Interest Rate
With the average credit card interest rate at just over 14.5% in the US, making purchases or borrowing on plastic can be expensive. But if your annual percentage rate (APR) goes above average — bearing in mind that rates above 20% are possible — borrowing can quickly spiral out of control. Unmanaged credit card debt can impact your credit score, so one way to reassert control is to lower the interest rate on your credit card. Here’s how.
Ask the Lender to Lower the Interest Rate
Yes, it’s an option. Credit card borrowing is an agreement between you and the lender, which means that it is open to renegotiation. If you think the interest rate on your card is affecting your ability to clear your balance, ask the lender for a reduction. Their incentive? The credit card market is ruthlessly competitive and your business has value, even if it is in the form of debt. Imply that you received a better offer from a competitor, and the reward may be a lower interest rate on your credit card. Your case will be stronger if you have made all payments to date on time.
Use a Balance Transfer Card
You can’t pay off credit card debt with another credit card, but you can transfer the debt to a balance transfer card. Several providers on the market are vying for customers with competitive deals. Check for the best ones using online comparison tools. Here’s how balance transfer works:
- You transfer your full (higher rate) credit card balance to the new provider.
- The best deals offer a 0% interest rate, usually for an introductory period of 12 to 18 months. Otherwise, look for lower interest rates than your existing card offers.
- Make regular monthly payments and pay off your balance before the introductory period ends.
Avoid These Balance Transfer Errors
Approach a balance transfer as a debt reduction strategy on the path to financial freedom. That means you should avoid using your card for purchases or withdrawals as these will automatically incur interest at a potentially higher rate. As with your previous credit card, you should also make sure that you make payments every month. Any late fees or penalties could void your introductory offer.
The Disadvantages of Balance Transfer Cards
Balance transfer cards carry some disadvantages, otherwise everyone would be doing it. For example:
- Borrowers will have to pay a balance transfer fee to switch. In some cases, this fee could cancel out any advantages.
- The lower interest rates, particularly 0%, are usually available only to borrowers with an above-average credit score, typically higher than 670.
- Once the introductory period ends, the interest rate on these cards can skyrocket.
Avoid applying for a balance transfer card to lower your credit card interest rate unless you are confident that you meet the criteria, otherwise the search and application will lower your existing credit score. Also, be warned that advertised APRs may be conditional on a credit score that turns out to be higher than your current rating.
Tips for Sound Credit Card Management
To achieve your best credit score as a borrower, follow these conventional strategies based on sound financial wisdom:
- If you have several credit cards in play, pay off the balance on the cards with the higher interest rate first.
- Never miss a monthly payment and always pay more than the minimum payment required.
- Avoid using your credit card for everyday purchases or cash withdrawals. If you must, clear the balance within the interest-free grace period (typically 21 days).
- Leave your card account open once the balance is cleared. Closing the account can lower your credit score.
To find out more about achieving your best possible credit score to access the most competitive interest rate for a credit card, check out SmartCredit’s tools and services for monitoring your credit.