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Reducing Credit Card Interest Rates

by Kevin McKinley - January 15th, 2017

Posted Under: personal

By now this month’s credit card bills are starting to roll in, providing tangible evidence of how heartily you celebrated the holiday season.

Hopefully you have the cash to pay the debts off right away. If not (or if you have been carrying a balance for a while), you might like some assistance in reducing what you owe as quickly as possible.

Highly interesting

The biggest barrier to paying off lingering credit bills would seem to be the interest rates. And to be sure, Bankrate.com says the average annual credit card interest rate is currently over 16%.

If you have a $10,000 credit card balance at that rate and want to pay it off in two years, a $500 per month payment will do the trick.

But if you could get that annual interest rate down to say, 6%, it would be about $443. Or you could make the same $500 monthly payment and zero out the balance in 21 months, vs. 24.

Reducing the rate

There a few steps you can take to attempt to lower the interest rate, and potentially save hundreds of dollars.

First go to annualcreditreport.com to get your “raw” credit data from each of the three major credit bureaus. You can get one free report from each bureau every 365 days. Verify that the information the bureaus have on you is correct, and that there aren’t any errors that are negatively affecting your score. You can see if your credit card company or financial institution offers the score for free, or go to MyFico.com to obtain your score for a nominal fee.

Then find your credit score, a three-digit number used by each bureau to quickly quantify your projected reliability as a borrower.

You may be able to get your score for free from your credit card company, bank, or credit union. Otherwise, you can obtain your score for a nominal fee at MyFico.com.

Once you’ve verified that your credit reports are accurate, and seen how you look to current and would-be credit card companies, it’s time to start talking to them.

Negotiations begin

The first thing to do is contact your credit card company to see if it’s possible for them to lower the interest rate you’re paying. There’s a good chance they’ll say, “No”, but it won’t hurt to ask.

You can then apply to another credit card company to see if you qualify for a 0% balance transfer option. If you haven’t recently received an offer in the mail, visitcreditcards.com/balance-transfer to find offers from various providers.

Note that many balance transfer options charge fees on the transfer, and the low interest rate is usually only good for a limited period of time.

If you have a few different credit card accounts, contact each provider to see if they are willing to offer you a deal if you consolidate all of your balances on one card account.

Go with a loan

You should also contact your bank or credit union to see if they can get you a credit card with a lower interest rate and/or smaller fees. They might be able to provide a consumer loan that would pay off your credit cards, and then allow to pay the new loan off at a lower interest rate, and/or a longer payment schedule (thereby lowering your monthly payment amount). Some words of caution

When you apply for a new loan or credit card, the application can ding your credit score a bit. So if you’re making multiple applications, do so within a short period of time so that your score won’t be greatly affected.

Many balance transfer options have upfront fees associated with the transfer, and the lower interest rate is only good for a limited time. Therefore make sure you read the fine print and understand the terms of any offers before committing.

Finally, once you’re able to pay off the credit card balances, put the cards away and only pull them out for an emergency (and no, next Christmas does not count as an “emergency”).