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If you're worried about a high interest rate on your credit card eating into your savings, you should know it's not a number that's set in stone. Most cards have a variable interest rate, meaning it can fluctuate based on several factors, including your card issuer's discretion.
You can negotiate a lower interest rate on your credit card by calling your credit card issuer—particularly the issuer of the account you've had the longest—and requesting a reduction.
While the issuer isn't guaranteed to say yes, you're most likely to find success if you have a history of on-time payments and your credit score is strong or has recently increased. Sharing personal circumstances like unemployment or other financial difficulties can also help you make your case.
Here's how to plan for and effectively negotiate a lower credit card interest rate—and what rates you should be aiming for.
How to Lower Your Credit Card Interest Rate
If you carry a balance on your credit card, a higher interest rate, also called an annual percentage rate (APR), can make it harder to put a dent in your debt. When you make payments on a high-APR card, more of your money goes toward interest, which means it takes longer to chip away at the principal balance.
Negotiating a lower credit card interest rate is one strategy to get out of debt. It can also offer breathing room if you're dealing with a financial emergency that affects your ability to cover all your bills. Here's how to do it:
1. Start With the Card You've Had the Longest
It's a good idea to ask for lower rates on all your credit cards if you have more than one. But prioritize the issuer you've had a card with the longest. Particularly if you consistently pay your credit card bill by the due date, as that track record should give you some leverage.
Let the issuer know why you're seeking a rate reduction: Perhaps you're facing a new financial burden such as job loss, a salary cut or unexpected medical bills. Maybe you've recently worked on building your credit, and you'd like to focus now on paying off debt. Or you might have received offers in the mail or online for cards with lower rates than you currently have.
Mention that you've made on-time payments for several years and ask whether the issuer would consider reducing your interest rate as a way to reward your loyalty and reliability.
Another way to start is to call the issuer of the card that carries the highest interest rate. A drop in that card's rate will reduce the amount of interest you pay by the biggest margin. But if you haven't had the card for too long, you won't be able to use your customer loyalty to your advantage.
2. Ask for a Temporary Break if Necessary
If your issuer isn't willing to offer a lower rate indefinitely, ask for a temporary reprieve: for instance, a one-year rate reduction of 1 to 3 percentage points. Be sure to mention it if your credit score has recently gone up, which can show that you'll make payments on time in return. Or you can ask for a temporary break for as long as you'll need to bounce back from financial trouble.
3. Try Again
Keep detailed notes of all your calls. If a credit card issuer is unable to lower your current interest rate, even for a short time, call again in three to six months. Asking again won't hurt, especially if you continue to make your payments on time. And be sure to mention any new, lower rate card offers you've gotten from competing issuers in the meantime.
While you can threaten to cancel your credit card if the issuer doesn't agree to your request, know that doing so could negatively impact your credit scores. Canceling a credit card reduces your overall available credit, which means you'll be using a higher proportion of it if you have debt on other cards. A higher credit utilization rate can hurt your credit scores.
4. Call the Rest of Your Issuers—and Put Your Savings to Use
Repeat this process with the rest of your issuers. Even if you have a card with a much lower balance than the others, call the credit card company and try to negotiate a lower rate anyway. Any money you save on interest helps, and be sure to use those savings to make extra or larger payments on cards with higher rates.
As you pay down debt, consider using the debt avalanche method to pay off your cards with the highest interest rates first. That means making minimum payments on the rest of your cards, and putting as much as possible to the one with the highest interest rate. Once the first balance you've targeted is gone, focus on the next highest-rate card and repeat the cycle. You'll save the most money in interest over time this way, especially coupled with lower rates from your successful negotiations.
What Is a Good Interest Rate on a Credit Card?
The credit card interest rate you'll qualify for depends on your credit score, the type of card you're interested in and overall market conditions.
One way to gauge whether a card's interest rate is "good" is to compare it to the average. As of November 2019, the average interest rate on credit card accounts that charge cardholders interest was 16.88%. When negotiating a lower rate on your current cards, aim for a rate that's lower than the average.
Keep in mind, too, that rewards credit cards will likely charge higher rates than cards that don't offer airline miles or cash back. Similarly, credit cards aimed at those with fair or poor credit and retail credit cards often have higher rates.
How to Avoid Paying Interest on a Credit Card
Your cards' interest rates won't affect you if you pay off each card's balance in full every single month. That may be easier to do when you take advantage of your card's grace period, which most issuers offer. The grace period is the time between the end of your billing cycle and your payment due date, and it's typically 15 to 21 days.
Paying off your total balance before the grace period ends means paying no interest on your charges. But if you carry a balance for even one month, your issuer may suspend or eliminate your grace period—meaning you'll pay interest on the outstanding balance and on any new purchases starting from the day you make them.
Check your credit card's terms and conditions to understand how your issuer treats the grace period. You may regain grace period privileges if you pay off your total balance for a few months in a row. As a general rule, though, always bring your balance to zero by the due date, and you won't have to worry about access to the grace period or fast-rising interest charges.
How a Lower Interest Rate Can Help You
Lowering the interest rate on even one credit card may help you pay off debt sooner, which may also increase your credit scores.
It's important to maintain good credit habits after you've lowered your interest rates and paid off debt: Avoid charging more purchases unless there's an emergency—and even then, an emergency savings account should help you avoid having to use credit cards in the first place.
If your card issuers hold out and won't lower your rates, be patient and call again to negotiate periodically. Changes in circumstances, available card offers and even different customer service representatives may get you the response you want.