Credit cards have some great perks (who doesn’t love cash back?), but pesky high interest rates can cancel out those benefits.
High interest rates mean higher monthly payments for those with credit card debt. Fortunately, there are ways to lower your credit card interest rates, including negotiating with the credit card company or consolidating your debt. Consolidation can take on several forms, ranging from a debt management program, to a personal loan to putting everything on one card with a lower interest rate.
Most high credit card interest rates are tied to a low credit score. Before you work on lowering your interest rate, it’s important to do your homework, including knowing what your credit score is.
The average APR for new credit cards was 19.24% at the end of 2019, but, as you’ll see, the average rate fluctuates depending on the credit score. The higher your score, the lower your interest rate.
Here’s how it breaks down:
- Fair Credit (FICO Score 580-669) – 22.57%
- Good Credit (FICO Score 670-739) – 20.31%
- Excellent Credit (FICO Score 740 and above) – 14.41%
A low score may make it harder to convince your credit card company to cut a deal. .
There are things you can do to improve your credit score, but that might not be enough and is not a quick solution.
Everyone’s situation is different. Take a look at how to negotiate a lower rate, and if that doesn’t work for you, there are other options listed below that for reducing your credit card interest rate, so you can pay off your credit card debt faster.
Ways to Lower Your Credit Card Interest Rate
The two main ways to lower credit card interest rates are to negotiate with the credit card company or to consolidate credit card debt into one lump sum with a lower interest rate. There are a variety of different means to do that.
Negotiating a lower interest rate, if successful, has an immediate effect on your monthly payment. It also doesn’t have a negative impact on your credit score; some consolidation methods include inquiries into your credit history and can reduce your score.
But if you are looking for a lower rate because your credit card debt is growing month-by-month with no end in sight, shaving a few percentage points off your rate won’t make a big enough dent and you’d be better off consolidating debt.
Consolidating debt, depending on which method you choose and your financial situation, can also have its downsides.
Negotiating with Your Credit Card Company
Take these steps to request a lower interest rate on your credit cards:
- Collect Your Financial Information: Find out your credit score and interest rate. You can order a free annual credit reportif you need to. It helps your case if you have a solid payment history.
- Check for Competitive Offers: It’s a good idea to do your homework on competitive offers. If you are getting proposals in the mail that offer a lower rate, that’s something to share with your credit card company when you negotiate.
- Call the Customer Service Number: This number should be on the back of your credit card. The reason you are calling is to request a lower interest rate. The customer service rep should be able to direct you to the proper department. Be sure to ask for their name and direct phone number so you can reach them again if the call gets disconnected.
- Make Your Request: The first point of contact may not have the power to change your interest rates. If they don’t, ask to talk to someone who has more authority to make these decisions. Discuss how you’ve been a good customer and, if you have a stellar payment history, be sure to stress that. Be polite, while still making a good case for why you should receive a lower interest rate. Here’s where you’d include any competing offer information you have gathered.
If you are asking for a lower interest rate because you are struggling to make monthly payments, you are better off asking about credit card hardship programs. In most cases, qualifying for this type of program will require a hardship situation, like losing your job or unplanned medical bills. Nonprofit credit counseling agencies offer similar types of programs, called debt management – a form of debt consolidation.
Lower Interest Rates by Consolidating Credit Card Payments Interest Rates
If negotiating your interest rate doesn’t work out, you can look to debt consolidation to lower interest rates. There are several different ways to consolidate debt, but the overall goal is to lower high interest and combine your debt into one easy-to-manage payment.
It’s always important to keep track of your credit report to see where you stand and if some debt consolidation methods, like applying for a credit card to consolidate the other cards onto, is lowering your score.
Reduce Interest Rates with a Debt Management Program
Debt management programs, offered by nonprofit credit counseling agencies, can lower interest rates to a fixed rate around 8%-9%.
If a credit counseling agency recommends a debt management program, the agency acts as the intermediary between you and the credit card companies. That means you don’t have to negotiate with credit card companies. Credit counseling agencies have agreements with major card companies to reduce rates for those enrolled in their program. The counselor will offer you the lower rate, and you can decide if it works for you. You would make one monthly payment to the credit counseling agency, and the agency disburses the money to each credit card company in agreed upon amounts.
This comes with a small monthly fee, but the reduced interest rate should more than make up the difference.
Balance Transfers Offer Low Introductory Rates
Transferring your credit card balance to another card is an option for those with solid credit scores. Many balance transfer cards come with a 0% introductory rate for 6-12 months, which can be a great tool to eliminate debt.
But there is a catch…
That low rate is a ticking time bomb. Once the honeymoon phase is over, credit card companies will often slap you with rates well above average. There is also usually a transfer fee of 3% to 5%, meaning you would pay as much as $500 to put $10,000 in old debt onto a new card.
You will have to have a good-to-very-good credit score (probably above 700) to qualify for one of these cards. Those without solid credit should look to debt management programs for relief.
Debt Consolidation Loans Beat Credit Card Rates
Personal loans, also known as debt consolidation loans, are another strategy to lower your credit card interest rate. Banks offer lower rates on personal loans than on credit cards, but again, this will depend on your credit score.
If you can qualify for a loan, you can use the money to pay off your credit card balances. That leaves with you just the debt consolidation loan to pay off.
Leveraging Assets for Lower Interest Rates
Borrowing from your assets, usually a home or car, to pay off credit card debt isn’t advisable because it turns unsecured debt into secured debt. That means you are putting an asset at risk if you wind up in default.
The upside is that because you are taking out a secured loan (against an asset), the interest rate will be much lower than what you would get for a personal loan or credit card.
Home equity loans and home equity lines of credit are two option. Borrowing from your 401(k) is another, but it shouldn’t be considered seriously. 401(k) loans rob you of the benefit of compound interest and put you at risk of penalties. All of that to borrow from an asset that is protected in bankruptcy.
If you aren’t sure about which option works best for your situation, give the credit counselors at InCharge Debt Solutions a call. We can evaluate your finances for free and make personalized recommendations.
- Kaufman, R (2016, September 26) Credit Scores 101: What’s a Good Credit Score Range? Retrieved from https://blog.myfico.com/whats-a-good-credit-score-range/
- Comoreanu, A (2019, October 17) Credit Card Landscape Report: Terms, Trends & More. Retrieved from https://wallethub.com/edu/cc/credit-card-landscape-report/24927/#interest-rates