It’s no secret that credit card interest rates in the United States have skyrocketed for many cardholders.
Today, the average hovers near a variable 18 percent, but many American cardholders may find their credit card balances earning interest upwards of 20 percent and even inching closer to 30. While some lawmakers have proposed legislation to aid Americans caught in a cycle of debt, many are still looking for short-term, tangible solutions to their mounting interest.
It may feel insurmountable to find yourself with a credit card balance you’re unable to pay because of high interest rates, but there are steps you can take to decrease your interest rate and move closer to eliminating your debt. The first of these is to understand interest and how your rates are determined.
The impact of high interest
Carrying high interest debt for an extended period of time is expensive. Accruing interest on a balance can cost you hundreds or thousands of dollars over time and make it more difficult to dig yourself out of the hole.
Consider a card with a balance of $5,000. If your interest rate on that card is 14 percent and you pay $200 each month, it would take 30 months to pay the balance off completely. A higher interest rate of 28 percent, on the other hand, would increase that payoff time to 38 months and cost you an additional $1,645 in interest alone.
Those costly interest rates keeping you from paying off balances can also impact your credit score. Carrying a balance each month drives up your credit utilization ratio. Experts recommend keeping your utilization around 10 percent of your total credit limit each month.
Consider the factors affecting your interest rate
There are several factors that may influence the interest rate an issuer assigns to you, like your credit score, the card you’re applying for and even the economy.
Not only does your credit score determine whether you’re eligible for a card, but it can also impact which interest rate you’ll receive. Many issuers offer a range of interest rates in their terms, and specify that the one you’ll receive is “based on creditworthiness.”
The card itself can also impact your interest rate. More premium rewards cards often have a higher interest rate, no matter your credit score. For instance, regular variable interest on the Chase Sapphire Reserve ranges from 19.24 to 26.24 percent. Retail cards, too, are notorious for their high interest rates. According to CreditCards.com’s 2018 Retail Store Cards survey, the median APR for retail cards is 25.64 percent. If you’re applying for one of these cards, it’s even more important not to carry a balance.
Finally, the federal funds rate, determined by the Federal Reserve, affects interest rates on credit cards and other types of loans by acting as a benchmark for a range of consumer interest rates. When the rate goes up, variable credit card interest does too, and when it’s lowered, as some predict may happen this year, credit card interest typically follows suit.
If your high interest debt is already taking a toll on your finances, here are a few options you can consider to get it under control:
Talk to your issuer
In many cases, simply picking up the phone and talking to a representative from your credit card issuing bank may be the solution to getting your interest rate down. In fact, according to a 2017 CreditCards.com survey, 69 percent of cardholders who asked for a lower interest rate had their request granted.
Negotiating with your issuer may be daunting, but it can pay off long-term. Make sure you’re prepared to ask for specific changes and have your account information readily available. If the credit card company is unable to lower your interest outright, some may temporarily waive interest with a hardship plan or even agree to a settlement plan on your current balance.
If this tactic doesn’t work but you want to stick with your current card, call again every few months, request to speak with a supervisor and make sure they know the value you bring as a customer. Don’t be afraid to mention your record of timely payments, the length of your relationship with the issuer and other factors that show your positive history with the issuer.
Consider other card options
Many cards on the market have competitive low interest rates that you may not have been aware of or concerned about when you took on your current credit card. If your card’s interest rate is costly and you’re not getting the most value you can from its rewards, it may pay to look into other options.
For instance, the Capital One® VentureOne® Rewards Credit Card offers a variable APR between 14.24 and 24.24 percent, along with its other perks like 1.25X miles on every purchase and no annual fee. If you’re not a big traveler, the Discover it® Cash Back card is another great choice, offering both a variable APR between 14.24 and 25.24 percent and a competitive cash back reward on revolving categories.
Bankrate’s guide to the Best Low Interest Credit Cards of 2019 can help you decide which card is right for you.
Transfer your balance and eliminate debt
If your high-interest card is perpetuating a cycle of credit card debt, transfer your balance to a card with a zero percent introductory period on balance transfers to quickly eliminate what you’ve already accumulated.
Balance transfer offers vary by length of introductory period, transfer fees and credit limits applied. Often, a longer introductory offer may come at the cost of a higher fee or fewer rewards. Consider what balance of rewards, interest and introductory period brings the most value to you long-term.
Bankrate’s top-rated balance transfer cards include the HSBC Gold Mastercard® credit card, which offers zero percent interest on balance transfers and purchases for the first 18 months after account opening, along with a low regular variable APR thereafter of either 13.24, 17.24 or 21.24 percent. Another great option is the Citi Simplicity® Card which, in addition to its long 21 month introductory zero percent APR balance transfer offer (16.74 to 26.74 percent variable thereafter), offers no late fees, no penalty fees and no annual fee.
Stay out of debt
It takes a bit of work, but the most effective way to eliminate high interest charges is by paying your balance in full and on time each month.
Without a balance on which to collect interest, it doesn’t make a difference in your bottom line whether your issuer charges as low as 13 percent or as high as 28 percent in interest. Begin tracking your spending to see what’s causing you to carry a balance, and then change your habits so you only spend as much as you can afford to pay off each month.
Take advantage of your credit card’s mobile app or another digital budgeting app like Mint so you can ensure your spending doesn’t get out of hand or leave you taking on more interest at the end of the month.
**The information about the Chase Sapphire Reserve card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
Don’t fall prey to interest rate payments. Check out Bankrate’s complete catalog on credit card APR advice and learn how to finance your next purchase with a zero-percent introductory rate.