When to ditch your high-interest credit card

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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 16 percent. So take a look at your credit cards and compare your interest rates 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 around 16 percent. If the interest rates on your credit cards are significantly higher than the average—say around 25 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 24.99 percent APR. If you make a $25 minimum payment on your credit card every month, it will take 87 months (more than seven years) to pay off your debt in full—and you’ll pay a whopping $1,170 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 $133 in interest.

If your credit card only charged 16.03 percent APR—the current national average—and you put $100 toward your $1,000 balance every month, you’d clear your balance in 11 months and pay only $80 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? 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.

You might also want to ditch your high-interest credit card if it charges a high annual fee. 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 can either ditch your card completely or downgrade your credit card to a no-annual-fee version.

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.

How to cancel a credit card

If you want to cancel your high-interest credit card, contact your credit card issuer and request to close your credit account. Canceling a credit card is generally an easy process, though you’ll want to make sure that any outstanding balance on your credit card is either paid off in full or transferred to a balance transfer credit card before requesting the cancellation.

You might be curious whether closing a credit card will lower your credit score. There are two ways closing a credit account could negatively affect your credit score:

Since your credit score affects the interest rates you get offered, you might want to avoid canceling a high-interest credit card if you don’t already have good or excellent credit. Focus on paying off your balance, and then keep the card active without running up any new debt on the account. That way, you can keep your high-interest card without paying high interest rates.

How to lower credit card interest rates

If you want to keep your high-interest credit card but don’t want to pay high interest rates, you have one more option—ask your credit card issuer to lower your credit card interest.

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 forbearance or deferment program that could temporarily reduce your high interest rates.

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.

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 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. 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.