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Effects of Lowering Credit Card Interest Rates

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Federal Reserve data notes that the average credit card interest rate for the first quarter of 2020 was just over 15 percent. What brings you above that average number, what brings you below it and why does it even matter? Find out more about how to lower credit card interest rates and why you want to make those efforts below.

Why Do Credit Card Interest Rates Matter?

Credit card interest rates are a major factor in how much your debt costs. A few percentage points in either direction can save or cost you hundreds of dollars, depending on how you manage your credit card balance.

Check out this example to help you understand why credit card interest rates matter—and how they can impact your wallet. Imagine you have a credit card balance of $4,000. Here’s how different interest rates would impact your payments:

  • At the average 15 percent interest rate and a monthly minimum payment of $80, it would take you 79 months to pay off the card. That’s around 6.5 years! You’d also pay $2,316 in interest.
  • At an above-average rate of 21 percent interest and a monthly minimum payment of $80, it would take you 120 months to pay off the card. That’s 10 years. The total interest cost would be $5,589.
  • At a below-average rate of nine percent interest and a monthly minimum payment of $80, it would take you 63 months to pay off the card—that’s just over five years. The interest cost would only be $1,032.

You can see that the lower your interest rate is, the less your debt costs. That’s a big reason why people seek lower interest rates.

What Are High Interest Rates and What Are Low Interest Rates?

Different types of debt have different average interest rates. The average interest rate for auto loans, for example, was 5.76 percent for a new car at the end of 2019. But we’re talking about credit card interest here. If the average is 15 percent, you can consider above that high and below that low.

What you personally consider a high or low interest rate probably also depends on your credit score. According to data from the Consumer Financial Protection Bureau, in 2019 people with superprime credit scores—scores of 720 or higher—had average credit card interest rates of around 13 percent. But those with deep subprime credit—scores of 579 or lower—had average credit card interest rates around 21 percent.

Can Your Interest Rate Change?

Yes, your credit card interest rate can change. It can go up if you miss payments or exceed your credit limit. This is sometimes referred to as penalty interest. It can also go down if you demonstrate an excellent account history or improve your credit history.

Your credit card interest rate can go up if you miss or exceed your credit limit. It can also go down if you demonstrate an excellent account history.

How to Negotiate a Lower Credit Card Interest Rate

While it’s possible that your credit card company will offer you a lower interest rate simply because you’ve done a good job managing your account, you usually have to ask them first. After all, they’re in the game to make money, and randomly offering people better terms doesn’t drive their bottom line. Follow these steps to negotiate with your credit card company to potentially get a lower interest rate.

1. Do Your Research

First, research your account and other offers, including competitor offers and those your credit card company might be advertising for new cardholders. Make sure you know what your interest is currently, how long you’ve been with the company and what the details of your account are. If you’ve always paid on time, for example, that might be a good point to bring up when negotiating your interest rate.

2. Improve Your Credit Score

Try to ensure your credit score is better than when you first applied for the card. At the very least, make sure it’s not lower. Some ways to improve your credit score include disputing incorrect negative information, reducing your credit utilization by paying down credit card debt and ensuring you have a good credit mix.

3. Call Your Credit Card Company

Call the customer service line for your credit card company. Let them know you’ve been an account holder in good standing for several years—or whatever time period is relevant. Highlight your excellent payment history with the credit card company, and note that your credit score is higher than it once was because of your responsible management of finances.

How to Negotiate a Lower Credit Card Interest Rate: Do your research, improve your credit score, call your credit card company

Let them know you’re entertaining other credit card offers, but you wanted to give them a chance to possibly match the interest rate. You want to paint a picture that you’re a valuable customer who is looking at other options so they’re motivated to work to keep you.

Other Ways to Lower Your Credit Card Interest Rate

It’s not always an option to lower your rate by negotiating with your credit card company. Sometimes, the card issuer simply doesn’t want to play ball, and other times, your credit or payment history might not be strong enough to support your demands. Here are some other ways to lower your credit card interest or the cost of your credit card debt.

Consolidate Credit Card Debt

Take out a personal or consolidation loan and use it to pay off your credit card debt. According to Federal Reserve data, the average interest rate for a short-term personal loan at the beginning of 2020 was around 9.6 percent. That’s much lower than the average credit card interest rate, which means there’s a good chance you can lower your rate by converting your debt.

Make sure that you close the credit card or put it away and stop using it, though. If you keep using the card, you could run up debt on it again and find yourself with double the debt you started with.

Consider a Balance Transfer

If you can qualify for a balance transfer credit card with a low introductory APR, you could find yourself with one or two years of zero percent interest. You transfer the balance from the high-interest credit card to the card with the introductory rate. If you can pay off the balance within the introductory time period, you can save a great deal of money.

Again, it’s important not to use the old card without paying it off monthly. If you run up the balance again, you now have two cards and double the debt to deal with.

Get Help From Debt Counselors

If you feel stuck with high-interest credit card debt and a seemingly endless cycle of minimum payments that never get you ahead, it might be time to talk to a debt counselor. Debt counselors can help you develop a better budget, negotiate with credit card companies and other lenders and create a payment plan to get you back on track in the long term.

Make Your Financial Health a Priority

Unfortunately, finances don’t manage themselves. If you’re not keeping an eye on them, you never know what’s happening. Check your credit reports regularly to see where you stand and ensure inaccurate information isn’t being reported. And check your credit card statements to understand your interest, whether it’s changed and whether you might be able to negotiate a lower rate to save money on your debt.

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