High interest rates are a pain in the wallet. That’s because higher interest rates lead you to pay more on the money you borrow than if you had a lower interest rate. For example, a $1,000 credit card balance at 6% interest rate would cost $5 a month in interest. On the other hand, if your interest rate was 28% (which is a typical default interest rate), your interest cost would skyrocket to $23 a month.
These are really simple examples because they don’t take into account fluctuating balances. Obviously, the higher your balance, the higher your monthly interest charges (aka finance charges).
In reality, a high interest rate only matters if you carry a balance on your credit card. In other words, if you don’t pay off your balance in full at the end of every month, then interest rate is a concern for you. On the other hand, when you never carry a balance, your interest rate could be 100% and it wouldn’t matter because there’s no balance to incur interest. For everyone else though, getting a lower rate is something to be desired.
5 Explanations for a High Interest Rate
- You have bad credit. People with lower credit scores, often have higher interest rates. That’s because the credit card issuer is using interest to compensate for the risk of you defaulting on your credit cards.
- You’ve been late on a payment. Most credit card companies have a policy of jacking up your interest rate when you’re behind on your payment. Your payment could merely be a few seconds late and your credit card company might more than triple your rate. This is true for late payments on other credit cards, too.
- You’ve exceeded your credit limit. Maxing out your credit card is another way to get the default rate on your credit card.
- Your payment check bounced. Even if you manage to get your payment in on time, many credit card issuers will increase your rate if your payment check bounces.
- You have a credit card during a credit crisis. During a credit crisis, no one is safe from having interest rates increased, even people with great credit scores.
Higher interest rates are highly undesirable. But what can you do about it?
Negotiate a Lower Interest Rate
Well, for starters you can call and ask for a lower rate. You need to have some bargaining power.
You need to have made your payments on time for at least the past six months. The more positive payment history you have on your account, the better your bargaining power.
Having a pretty fairly good to excellent credit score is ideal. If your credit score is below 720, you might have a hard time convincing the customer service reps to give you a lower rate. If your score is below 620, you might as well for get about the negotiation option.
Pull out some low-rate credit card offers if you have them. They’ll help you ask for a better rate.
Call your credit card’s customer service number on the back of your credit card. When the rep asks how they can help you say:
“Hi. I’ve been receiving credit card offers with interest rates lower than what you’re currently offering me. Can you lower my rate?”
The customer service rep will likely argue and say they can’t lower your rate. You follow with.
“Like I said, I have other credit card offers with rates half of what you’re offering. I’ve been a customer for 6 years and I’d rather not switch to another card. Are you sure you can’t match a lower rate?”
Many customer service reps will check their system and find out that they can indeed give you a lower rate. If the rep is still playing hardball, speak to a supervisor who will probably have more authority to override the computer system.
Do this for all your credit cards. When you find a credit card that’s lowering your rate, you might also ask for a balance transfer promotion that you can use to bring another balance onto that credit card. Your issuer will probably be delighted at the prospect of making more money and offer you a good deal on a balance transfer. Before you move a balance, though, try out a balance transfer calculator to make sure you’ll actually be saving money.
What Not to Say to Get Your Rate Lowered
When you’re calling about an interest rate increase, you want to be in the position of authority. The credit card company needs you, you don’t use them. Don’t try to use a sob story to get your rate lowered because it can backfire resulting in a higher rate or even a credit limit cut. For example, don’t beg for lower rate using a recent job loss as leverage unless you are already a few months late on your payments, in which case you should use an entirely different tactic.
Lower Rates Through Hardship Programs
Many credit card companies have hardship programs that will temporarily lower your interest rate and minimum payment. These programs are for cardholders who are already 2-3 months late on their payments. If this is your situation, call the credit card issuer and explain your situation. Be brief. Explain that you want to get current on your payments, but would like to know if they have a hardship program that can help ease your payments.
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