Many debtors have admitted that one of their biggest concerns is for their credit card companies to raise their interest rates on existing debt balances. I’ve actually heard of reports in the past of card rates that would go up to a whopping 30% APR. Some ask, is this legal? To the extent that it abides by the Credit Card ACT, it is legal, because as consumers, we all signed a little document with our credit card application that stated that our credit card companies can do whatever they want with the interest rates.
But count me in as one of those credit card users who aims to maintain a balance of zero. I think it’s safe to say that if you don’t carry a balance, then interest rates may not be that big a deal to you, but for those who do have a revolving balance (around half of all households), finding ways to reduce that debt should be a priority.
So I went ahead and compiled these tips to help you cut down on that revolving debt as much as possible. The following methods may help you lower your card rates.
5 Effective Ways To Lower Your Credit Card Interest Rates
1. Ask about a hardship program.
The first method is to call each of your creditors and ask if they have a “hardship program.” Not all consumers realize that creditors offer such programs to clients that may be cutting it close when it comes to paying their credit card bills each month. You want to call the number on the back of the card, express your concern that you may not be able to pay your bill next month, and ask if there is any type of hardship program they can offer you. Typically, these programs last from 3 months to 1 year.
In many cases, the creditor is able to cut the existing interest rate in half or even take it down to 0% for the first 6 months. The only drawback, for some, is that the use of your credit card is suspended. In this situation, you’ll not be able to continue using the card. However, if you want to get out of debt, this is exactly what you need to do anyway. A close friend of mine once asked for a hardship program (relating to their American Express rewards card) and received a 0% interest rate for the first 6 months, and 9.9% for the remaining 6 months of the program. This was a pretty good deal.
2. Become familiar with credit cards that sport relatively lower rates.
Start out by comparing credit card interest rates. Cards with lower rates are typically standard cards with stripped down features. Their main selling point is their regular APR, which isn’t normally as high as those for rewards or travel cards. Keep your eye on the rates you’ll get after any promotional periods expire — any rates that are under 10% may be on the lower end of the range.
If you’re currently shopping for a card, it makes sense to review the APRs of various credit card categories out there. I found this handy table of Credit Card Rate Averages from CreditCards.com that gives us some idea where rates stand at this time.
Note: Teaser, introductory or promotional rates have not been incorporated in this list. CreditCards.com maintains an ongoing tracker for such rates. Updated as of Jan 31, 2012.
3. Perform a balance transfer into a low interest rate credit card.
Consider lowering your credit card rates by completing a balance transfer to a low interest credit card. Such cards (such as 0% APR credit cards) can stop you from growing your debt. Here are some balance transfer credit cards that may fit the bill:
Be aware that there are two key components to moving your balance over successfully:
- First, you want to make sure you do not start racking up a balance on the card which you’ve already cleared (e.g. whose balance you’ve transferred elsewhere). Many consumers fall into this trap. Once they clear the debt on one card, they start charging it back up again. The whole purpose of performing the balance transfer is to get a lower rate so that more of your money can go towards the principal balance. If you charge up the original card again, you are going to remain in debt. You’ll need to change your card usage habits in order to make a difference with your debt.
- Secondly, you should read the fine print on your card. Look at the balance transfer fee on the new card and read its terms carefully. Find out how long you’ll be paying the lower interest rate. You’ll also want to know what your card’s regular rate will be once the intro rate expires. Transferring to a 0% APR credit card that goes to 24% in 6 months is NOT a good deal, unless you can pay it off in 6 months; and for many people, this is highly unlikely. If you feel that you will always have a balance, then it’s probably better to go for a card with a comparatively lower rate over time (a persistently low, average regular APR), even if it’s a bare bones card.
4. Get credit counseling.
Another option to reduce your interest rates is to call a credit counseling agency. While there are many agencies and outfits out there that will help you manage your debt for a fee, make sure that you start on this route by dealing with a legitimate, non-profit credit counseling agency.
You may want to consider signing up with a debt management program rather than with a debt settlement company (check the pros and cons of debt settlement). With a debt management program, you’ll rework your payments to your creditors in some capacity. If you do decide to work with such a program, you’ll also want to make sure that the company you are dealing with does not “hold” on to your first or third payment (to creditors) for their fee. Doing so will cause you to fall more than 30 days behind on your cards, which will have a negative impact on your credit report.
So where can you go for help for your debt situation? Here’s a short list of resources you can check:
- National Foundation For Credit Counseling for credit counseling
- Debtor’s Anonymous for providing support and fellowship among recovering debtors
- Lower My Bills for home refinancing, debt consolidation and debt management
- Home Foreclosure Fighter for loan modification services
- for mortgage refinancing and personal loan needs
From the list above, I’d like to point out that the National Foundation of Credit Counseling (or NFCC) can help you find a legitimate credit counseling agency. They can direct you to an agency that is licensed in your area and that will provide you with the proper educational and counseling services. I know debtors who’ve used this method for their credit cards and who were subsequently able to cut each interest rate by up to 10%.
5. Maintain good payment habits.
Finally, you’ll get the best rates from your credit cards by managing your debt well. Here are a few quick ideas for lowering your rates:
- Check your FICO credit score to know where you stand. An excellent credit status may give you some room to negotiate with your issuer. If you’re a good customer, talk to your credit card company about possibly cutting your credit card’s interest rate, especially if it’s above the average APR.
- Pay more than the monthly minimum or better yet, pay your entire balance per month if possible.
- Never skip a payment and never be late with it either!
- Don’t exceed your credit limit and avoid cash advances like the plague — they’re expensive!
So if you’re having trouble addressing your credit card debt, know that there are avenues you can take to work things out!
Created October 4, 2009. Updated February 7, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.