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How to Lower Your Credit Card Interest Rate

by John Kiernan. Personal Finance Editor

Most credit card terms are subject to change.  That includes interest rates for various types of account balances, which fluctuate due to the economic climate, issuer profit margins, customer performance, and a host of other factors.

It’s important to note, however, that interest rate changes are a two-way street:  rates can rise under certain circumstances, but they can fall as well.  So whether your debt is becoming more expensive or you simply believe that you deserve a lower rate than you were originally approved for, you do indeed have options for garnering a rate reduction at your disposal.

We’ll explain what these options are as well as how they relate to the situations in which credit card companies may increase interest rates below.

Why Credit Card Interest Rates Change

You can check out our Types of Interest Rates article for a more detailed discussion of credit card interest rate changes, but it’s important to touch on them briefly here as well because they provide the framework necessary to understand your rights and strategies when it comes to getting a lower interest rate.  So, here are a few of the most common reasons that interest rates change:

  • Rates Aren’t Always Fixed:  Variable interest rates change in concurrence with the Prime Rate.
  • Credit Cards Often Have Introductory Rates:  Many credit cards offer lower interest rates for the first few months before a regular APR kicks in – whether it’s on balance transfers, new purchases, or both.
  • For Future Transaction, They Just Have to Warn Us:  Credit card companies have the right to raise your interest rates on future purchases for any reason, provided they give you 45-days’ notice of the change taking effect.
  • Rates Rise When We Screw Up:  Creditors can begin applying a penalty interest rate to your entire balance if you become 60 days late on a payment.

Tips for Getting a Lower Interest Rate

The best way to tackle high interest rates depends on the specific nature of your situation.  For starters, if you always pay your credit card bill in full, you don’t need to worry about interest rates.  They’re just inconsequential numbers in your situation so don’t let them distract you from your primary objective of minimizing fees while maximizing your rewards earning capabilities.

If you’re carrying a balance from month to month or anticipate incurring debt in the future, your options vary based on your credit standing and level of indebtedness.

Above-Average Credit:

If you have good or excellent credit, your first step should always be to compare other available credit cards in order to find one that would better meet your needs and then ask your current creditor if they can match that deal.

Creditors often grant rate reductions to consumers who have improved their credit standing in recent months or years, especially those who’ve managed to consistently pay at least the minimum amount required by the due date.  Regardless, you have the upper hand in this situation because your credit profile is attractive enough to warrant improved terms relative to your current card elsewhere on the market.  So don’t be content with a simple rate reduction if far more attractive offers are attainable.

For example, most balance transfer credit cards offer 0% interest for the first 6-24 months of the agreement.  You aren’t likely to get such a sweet deal from your current creditor, but they’re attainable with a credit score of 660 or higher on the open market.

If you decide to transfer an existing balance to a new, better credit card, it’s important that you use a credit card calculator to compare the savings attainable across offers,

as they may provide 0% for different lengths of time and charge different regular rates and fees.  If you are able to pay off your debt before the introductory period is over, regular interest rates won’t be much of a concern.  However, they can quickly eat away at your savings if you don’t pay down at least the majority of your balance during the introductory period.

Keep in mind that if you’re a small business owner, you should consider both general consumer and small business credit cards for your balance transfer. Given that the business owner is personally responsible for the debt incurred on their credit card, regardless of the type of card they choose, it makes sense to also consider a general consumer credit card for your business if it offers a better deal.

Below-Average Credit:

If your situation is more serious or you do not qualify for a balance transfer credit card, your options again begin with a call to your credit card company.  Hopefully, you can work out a mutually-beneficial agreement that relaxes the terms of your repayment in order to prevent you from defaulting, at which point the credit card company might not get any of its money.

With a so-called debt management agreement. your card issuer will put you on an amended payment plan that involves reduced rates and fees, a lower monthly payment, or all of the above.  Depending on the exact of your payment problems, your account may also be closed in order to prevent continued spending and you may incur some credit score damage.  Debt management is typically an option when someone is barely able to make the minimum payment on their credit card account.

It’s also important to note that if you don’t get anywhere negotiating a debt management plan with your creditor, there are nonprofit organizations that you can contact for assistance.  Creditors are often more receptive to such organizations’ overtures, and they are familiar with the process than the average person.

What to Do if You Can’t Get a Rate Decrease

Seriously indebted consumers aren’t out of options even after striking out on both a balance transfer and debt management.  The remaining options aren’t all that attractive, though, and should only be considered if you absolutely cannot afford even your minimum payments and have exhausted all other potential recourses.  They basically boil down to:

  • Debt Settlement :  When you choose credit card debt settlement, you withhold payments from your credit card companies, intentionally defaulting on your account. Doing this will destroy your credit score and may also trigger a lawsuit, but it’s done with the hope that your credit card issuers won’t sue and will be willing to settle for much less than what you currently owe them. This may be the most risky option at your disposal due to its uncertainty.
  • Bankruptcy :  Bankruptcy should be considered if you find it impossible to make the minimum payments not only on your credit card accounts, but also on other types of debt (i.e. mortgage, car loan, medical bills, etc.). If you go this route, remember that bankruptcy will destroy your credit score and will stay on your credit report for up to 10 years.

Bottom Line

At the end of the day, the need for a lower interest rate can be indicative of many things – from the misplaced priorities of consumers who never carry a balance to serious spending problems.  It’s therefore important that you not only consider how to get a lower interest rate, but also what led you to need one in the first place.  Learning from your experiences will save you a lot of money in the long run.

Image: Ints Vikmanis /Shutterstock

Category: Credit

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