Effective Ways to Reduce Your Credit Card Interest Rate

Credit card interest rates are notorious. The average credit card interest rate currently sits above 20%, and cardholders with low credit scores can expect their interest rates to approach 30%. That can make carrying a credit card balance prohibitively expensive, especially for those who only pay the minimum each month. The good news is that you’re not necessarily locked into your current credit card interest rate. You may be able to lower your APR by calling your lender and asking for a reduction or taking advantage of a special interest rate program.

The Credit Card Interest Costs

According to data from Bankrate, the average interest rate on a credit card was 20.66% as of 8 May 2024. Interest rates have fallen slightly since the beginning of the year, but the savings are minimal for most cardholders who carry a balance.

But what does this actually mean for the average cardholder? First of all, high interest rates essentially wipe out premium income. The best flat-rate credit cards allow you to buy a 2024 plan for around £2. Other cards with bonus categories might give you 5% or 6%, but only on certain purchases. With a 20% APR, you’re paying much more in interest than you’re earning.

Plus, a high APR makes paying off your credit card balance a slower, more expensive process. If you have a $5,000 credit card balance with a 20% annual interest rate and pay $100 per month, it would take you a whopping 109 months to pay off your debt, and you’d pay over $5,800 in interest over that time. This is assuming no additional fees accrue on the card.

How to lower your credit card interest rate

First, it’s important to know exactly what your APR is. Your credit card terms and conditions (you should receive a copy after approval) will have what’s called a Schumer box, which lists all the charges and fees. This information includes the APR (most commonly referred to as the credit card interest rate) on purchases and balance transfers.

If your credit card interest rate is high, there’s no need to panic. It’s best to pay off your card balance in full each month, but this isn’t always possible for all cardholders. Those with high APRs and who are forced to carry a balance may be able to lower their credit card interest rates by following these steps:

1. Do Your Research

Like all negotiations, reducing your APR should start with research. The most important questions to ask are whether your interest rate compares competitively to other card offers and whether it fits with your credit score. Look for similar cards and their APR ranges, keeping in mind that the higher your credit score, the lower your interest rate.

You can also view pre-approved credit card offers to get an idea of ​​the actual interest rate you’ll qualify for based on your credit history. Not all pre-approved offers include the actual interest rate, but if they do, you can use it as evidence for future negotiations.

2. Negotiate with Your Card Issuer

Once you have a good understanding of your credit card interest rate situation, it’s time to negotiate your APR. Call the number on the back of your card and follow this script:

• State the reason for your call. You’re looking to lower your credit card interest rate based on your qualifications and what your competitors are offering
• List any competing offers you qualify for. Based on your credit score and previous investigations, here are some examples of competing card interest rates to target to lower your interest rate. If the lender thinks you will take advantage of a competitor’s offer, they will be more likely to adjust your interest rate to keep you as a customer.
• View your positive history with the lender and changes in your credit score. Don’t forget to show that you are a responsible credit card holder and view your history with the lender. If you have always paid your bills on time, let them know. It’s also a good time to mention what improvements you’ve made to your credit score since applying for the card, because the interest rates you qualify for may change.
• Explain your financial situation. Publishers want you to pay their fees. Lenders will likely want to work with you if you explain that you’ll make every effort to pay off your balance and offer a lower interest rate or repayment plan to help you do that.
• Talk to your manager or another representative. If you get a “no” on your first call, don’t give up. Ask to speak to a manager or call again another day to speak to a different employee.

If the issuer agrees to lower your interest rate, you may need to run another credit check to confirm your current score. Ask a customer service representative if you should expect your score to drop a few points in anticipation of this test. However, these points can usually be regained quickly, so don’t worry too much.

3. Consider a Balance Transfer

You may not be able to lower the interest rate on your existing credit cards. However, there are still ways to reduce the interest you pay on your repaid balance.

Balance transfer credit cards offer a discounted APR for a limited time before your standard interest rate applies. The best balance transfer promotions last for 12 to 21 months, giving you enough time to pay off your balance before interest starts accruing again. They typically charge a 3% to 5% transfer fee up front, which is almost always less than what you’ll save over time.

Balance transfer credit cards may not be the best option for future spending, but they’re a good option for lowering your credit card interest rates on existing debt. If you want payment flexibility on future transactions, consider a low-interest credit card instead.

4. Choose a Credit Card with a Low APR

If you can’t negotiate your credit card APR, it’s a good idea to look for a new credit card with a lower interest rate. It’s important for cardholders with balances to have realistic payment habits and choose the best card for them accordingly. If you don’t pay off your balance in full each month, you’re better off with a low-interest credit card than one with rewards.

Remember, high interest rates essentially wipe out premium income. Points and cash back may be appealing, but they’re not for all types of spenders.

5. Make an Effort to Improve Your Credit Score

Remember that your credit score determines the interest rate that is applied to you. Excellent credit cardholders are eligible for the lowest rates, whereas poor credit cardholders are sometimes stuck with significantly higher APRs.

Maintaining a low credit utilization ratio and paying all of your payments on time will help you raise your credit score. Once your credit score has improved after a few months, you can retry negotiating your credit card APR or apply for a new credit card with a low interest rate or balance transfer.