There are two ways to lower interest rates on your credit cards. The first is to negotiate with you credit card company. The second is to consolidate your credit card debt.
We’ll walk you through each of the two scenarios, but first, it’s important to understand that credit card interest rates depend on credit scores.
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.
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 800+) – 14.41%
Take a look at your credit score before you start negotiating for a lower interest rate. You might have a difficult time convincing your credit card company to cut you a deal if your current interest rate and credit score matches up with the averages above.
There are a few things you can do to improve your credit score, but that might not be enough. Fortunately, there are other options 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
I’ll start with how to request a reduced interest rate, but if you are looking for a lower rate because you have credit card debt growing month-by-month, shaving a few percentage points off your rate won’t make a big enough dent. Skip ahead to the next section for more effective advice.
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 report if you need to. It helps your case if you have a solid payment history.
- Check for Competitive Offers: You need leverage for a negotiation. If you can qualify for a balance transfer card with a better rate, that will pressure your credit card company into accommodating your requests at the risk of losing a customer.
- Call the Customer Service Number: This number should be located 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: This will take some persuasion so start with how long you have been a loyal customer with the bank. Mention that you have been making on-time payments (hopefully). Then tell them that you have been offered a new credit card with a lower interest rate from a rival bank. Ask them if they are willing to beat the offer. The first point of contact may not have the power to change your interest rates, so you might need to ask for a supervisor. They will have more authority to make these types of decisions.
If you are asking for a lower interest rate because you are struggling to make your 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. But nonprofit credit counseling agencies offer similar types of programs called debt management – a form of debt consolidation.
Consolidating Credit Card Balances Into Lower Interest Rates
If negotiating your interest rate doesn’t work out, you can look to debt consolidation for lower interest rates. There are several different ways to consolidate debt, but the overall goal is to lower your interest rate and combine your debt into one easy to manage payment.
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%.
The best way to describe a debt management program is that the credit counseling agency will act as a middle-man between you and the credit card companies. There’s no need to pick up the phone and negotiate with each credit card company. Credit counseling agencies have agreements with all of the major card companies to reduce rates for those enrolled in their program. Their clients make one monthly payment to the credit counseling agency, and the agency disburses the money to each credit card company for them.
This does come with a 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 actually 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 good credit 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 are another strategy to lower your credit card interest rate. Banks offer lower rates on loans than credit cards, but again, this will depend on your credit score.
If you can qualify for a loan, you can use the funds 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 to pay off credit card debt isn’t advisable because it is turning unsecured debt into secured debt. That means you are putting an asset at risk if you wind up in default.
That being said, 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 are unsure 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