How to Lower Credit Card Interest Rates & Save

Hey everyone. Today I have a guest post from a young lady taking the initiative to build her blogging resume, and get a head start on paying off her college debt. I just love Millennials who get after it like Lauren has done here and am always glad to help out. Enjoy!

Roughly 50% of Americans have credit card debt that isn’t paid off every month, which means half the population is paying interest on their credit cards. The national average credit card interest rate hovers around 15%, but many people are able to negotiate their existing rates to well below that percentage. A reduction in interest rate means more money in your pocket at the end of every month. Still, many other credit card users are paying 20% or more.

Depending upon your balances, this could mean hundreds of dollars a month in interest. For example, a credit card that carries $5,000 month-to-month at a 20% APR can take over four years to pay off and cost the holder $2,360 in interest alone. If you’re in this boat, it’s time to take control of your high interest rates. There are some basic ways to lower your credit card interest rate and save you money.

Tactic #1: Negotiate Directly with Your Credit Card Companies

Too many people are afraid to simply call up their credit card companies and negotiate a lower interest rate. Of course, this tactic doesn’t work 100% of the time, but you’ll never know if you don’t ask. If you get those unsolicited credit card offers in the mail, open them up to see what range of APRs you are being offered. If they are lower than the rates you pay on your existing cards, you are probably in a pretty good position to negotiate with your current companies for a lower rate. If you don’t receive those offers by mail, do a little research online to guess at what kind of rate you would expect to receive considering your credit score.

Don’t know what your credit score is? That’s alright, because many people don’t track their scores closely until they actually plan to apply for new credit or do something credit-based, such as negotiating a new interest rate. Everyone is entitled to a copy of their credit report from each of the three main credit bureaus—Experian, TransUnion, and Equifax—once a year, for free. Go to annualcreditreport.com to order your reports, or you can contact the credit bureaus directly.

Once you’re armed with competing credit card offers, or at least an idea of what rate you would qualify for, you’re ready to call up the companies. When you get through to customer service, be polite, but firmly state that you would like to request an interest rate reduction based on your card loyalty and competing card rates. Sometimes, even if they are unable to tell you yes, they may have some advice about re-requesting in the near future. With any luck, though, you’ll be able to score a new, lower rate with just a quick phone call.

Tactic #2: Shop Around for Balance Transfers

Another way to lower your interest rate is to simply move your balances from higher interest cards to new, lower interest cards. Agains, this is when those unsolicited credit card offers in the mail come in handy. Although most of them don’t guarantee you that you’ll be approved when you apply, those offers are sent out based on credit, and if you have sufficient income you’ll probably be approved.

One way that credit card companies try to solicit business away from one another is with enticing rates on credit card balance transfers. These are often marketed in big, bold letters as “low, introductory rates” and may last anywhere from a few months up to a year. If you’re able to transfer some or all of your debt to a new card with a much lower interest rate, just be sure that you budget in a way that allows you to pay off as much as possible of the balance before the introductory period ends and the rate shoots up.

Of course, there can be downfalls to this tactic. One thing you must watch out for are costs directly associated with balance transfers. These are transfer fees, and if you don’t pay off your balance (or pay it down significantly) during that introductory rate, the higher non-introductory rate combined with what you paid in transfer fees, may add up to more than the interest you were previously paying!

Another concern is that applying for new cards can ding your credit score. Part of your score is affected by how many “hard hits” your credit receives within a certain period of time. A couple hard hits won’t affect your score, but more than that can have an impact that brings your score down until enough time passes that the hard hits drop off your report. And if your score goes down, that affects what sort of rates you’ll qualify for based upon credit. This is why it’s so important to identify the best credit card offers first, then apply very selectively.

Tactic #3: Start Improving Your Credit Score

If negotiating with your current companies doesn't lead to rate reductions, and you aren’t able to snag a new card with lower rates, then don’t worry because all is not lost. You can still get your credit card interest rates reduced, but it’s going to take a little longer to get there. It’s time to start improving your credit score, which will put you in a better position to qualify for lower rates in the future. There are a few factors to consider with this.

First, order and carefully examine all three credit reports from the major bureaus. Roughly a third of us have inaccurate credit reports, so look for anything unusual—a company you don’t recognize, judgments or repossessions that don’t belong to you, even inaccurate late payments. Be very careful to make your payments on time whether for credit cards, mortgage, student loans, or any other line of credit. Over time, this will improve your score. Getting your credit card utilization rate down to under 35%, and keeping it there, will also benefit your score. Do all of these things and six to eight months later, check your scores again for improvement. Good luck!

Lauren Davidson is a soon-to-be graduate from the University of Pennsylvania. As she transitions into the “real world” she is looking for freelance writing work to help pay off her student loan debt. You can visit her site here.