Should I close my credit card if I have a high interest rate?

Are your credit cards charging more interest than you can afford? A high-interest credit card can make it a lot harder to pay off credit card debt. Even if you only carry a balance on your credit cards occasionally, high interest rates can cost you a lot more money than you realize.

What is a high interest rate? Right now, the average credit card interest rate in the United States is around 20 percent. So take a look at your credit cards and compare your annual percentage rate (APR) to the national average.

Knowing how to lower credit card interest rates — by switching cards, raising your credit score or contacting your credit card issuer — is an important financial skill.

Let’s take a look at how much a high-interest card can cost you, when you should ditch your high-interest credit card and what you can do if you want to keep a high-interest card open.

What is a high interest rate for a credit card?

Are you paying too much interest on your credit cards? A good APR for a credit card can depend on many factors — your credit score, the type of credit card you choose and so on. If you have good credit, you’ll probably get offered lower interest rates. If you sign up for a store credit card, you’ll probably pay higher interest rates.

That said, the average credit card APR is currently hovering just above 20 percent. If the interest rates on your credit cards are significantly higher than the average — say around 30 percent APR, for example — you might want to consider lowering your rates. This means you’ll either need to contact your credit card issuer and request a lower credit card interest rate or cancel your credit card and apply for a low-interest card instead.

If you always pay off your credit card statements in full, it might not matter whether your credit card has a high interest rate. People who never carry a balance past their credit card grace period don’t get charged interest on their purchases. That means that you can have a credit card with a high interest rate without having to worry about how much that interest could cost you.

If you do carry a balance, however, that high interest rate can get pretty expensive.

How expensive is it to carry a balance?

How much interest will you pay on your credit card balance? It depends on your current APR and the amount you’re carrying on your credit card. A good credit card calculator can help you figure out exactly how much your unpaid balance might cost you.

Here’s an example to help you understand just how expensive it can be to carry a balance. Let’s say you have a $1,000 balance on a credit card with a 29.99 percent APR. If you make a $30 minimum payment on your credit card every month, it will take 73 months (more than six years) to pay off your debt in full — and you’ll pay a whopping $1,175 in interest charges.

If you decide to be a little more aggressive about paying down your credit card debt and put $100 toward your balance every month, it will take only 12 months to pay off your credit card and you’ll pay $165 in interest.

If your credit card only charged 20.50 percent APR — roughly the current national average — and you put $100 toward your $1,000 balance every month, you’d clear your balance in 12 months and pay only $105 in interest. That’s why some people decide to ditch their high-interest credit cards and look for lower-interest options.

When should you ditch your high-interest card?

When is it time to say goodbye to a credit card with a high interest rate? Let’s take a look at a few scenarios where it may or may not make sense to get rid of a high-interest credit card.

You always carry a revolving balance month to month

If you are carrying a revolving balance on your credit card, you’re likely paying a lot of interest on that balance every month. That means it’s probably time to look for a lower-interest option. Consider transferring your balance to a credit card with a 0 percent introductory APR period, which will give you the opportunity to pay down your credit card debt without accruing interest. In order to qualify for a balance transfer credit card that offers a long interest-free period, you will need to have good or excellent credit. However, there are options for individuals with fair credit, too.

Keep in mind that if your new balance transfer card doesn’t allow you to transfer your entire balance from the high-interest credit card, you will need to keep that account open until it is paid off. If this is the case, you should pay off the transferred balance as soon as you can in order to take full advantage of the 0 percent intro APR period allocated on your new balance transfer card.

If you can commit to paying off your balance before that period ends, you can avoid accruing interest. You don’t want to find yourself in a situation where you finally dumped your high-interest credit card for another high-interest credit card because you weren’t able to pay off the remaining balance in time.

You always pay your balance on time but you pay a high annual fee and a high interest rate

If your high-interest credit card isn’t costing you a lot of extra money in interest (maybe because you pay your balance off in full every month), you might not want to ditch your card quite yet. Having multiple credit cards is good for your credit score, so consider keeping your high-interest account open while you look for a new card with lower interest or better credit card rewards. Once you find a credit card you really like, you can make it your everyday spending card.

However, if you always pay your balance on time but you have a high-interest card that charges a high annual fee, you may want to ditch that card. You can either cancel the card completely or downgrade your credit card to a no-annual-fee version. Paying an annual fee on a card that’s charging you high interest rates isn’t a great option, and there are plenty of no-annual-fee credit cards that might better suit your needs.

You sometimes pay your balance on time and in full

It isn’t uncommon for people to occasionally fall behind on their credit card payments, but you don’t want to make a habit out of it (especially with a high-interest credit card). If you find yourself occasionally struggling to pay off your balance on time and in full, consider asking your credit card issuer for a lower interest rate. If you don’t typically fall behind on payments, your credit card issuer may be willing to work with you. It is important to be proactive in a situation such as this because you don’t want to rack up debt on a high-interest credit card due to falling behind on a few payments. Try your luck negotiating and ask for a lower interest rate.

How to lower credit card interest rates

So, how exactly do you go about asking for a lower interest rate? If you are doing well financially — especially if your income and your credit score have both recently improved — you might be able to convince your credit card issuer to lower your interest rates. Since interest rates are often tied to credit scores, contacting your credit card issuer to let them know your score has gone up could prompt them to offer you a lower interest rate.

If you are currently experiencing financial hardship, you might be able to get your interest rates reduced or your monthly credit card payments temporarily waived. Most credit card issuers offer some type of hardship assistance to help people who are going through financial difficulties, and you might qualify for a deferment or forbearance program that could temporarily reduce your high interest rates.

There’s one more way to get your credit card interest lowered, and that’s to call your issuer and begin the process of canceling your credit card. In some cases, a customer service representative will offer to lower your interest rate if you agree to keep your account open. Since there is no guarantee that you’ll get a lower interest offer, you should be prepared to take this step only if you are willing to go through with the cancellation.

The bottom line

A credit card with a high interest rate can cost you a lot of money over time, especially if you aren’t able to pay off your balances in full every month. If you are currently carrying a balance on a high-interest credit card, consider transferring your balance to a balance transfer credit card and ditching your high-interest card.

Keep in mind that you don’t necessarily have to cancel your high-interest credit card account to avoid paying high interest charges. Since your credit score affects the interest rates you get offered, you might want to avoid canceling a high-interest credit card altogether. Instead, you can transfer your balance (or pay it off in full) and let the account remain open and in good standing. That way, you’ll increase your available credit and potentially boost your credit score.

If you want to keep using your high-interest credit card as your everyday spending card, contact your credit card issuer to see if you can negotiate a lower interest rate. Otherwise, clear out the balance and look for a lower-interest option.