Paying down a credit card balance can seem impossible, especially if you’re paying 20% or higher interest on your bill every month you don’t pay off the balance.
When that happens, your monthly payment disappears into a black hole and the balance never gets smaller.
With the average credit card interest rate at 17.30% in December of 2019 it’s no wonder monthly payments don’t seem to make a difference.
The best way to avoid the black hole and reduce your credit card balance is to negotiate a lower interest rate with the credit card company. It is a simple, straightforward approach to get what you want.
Another option is debt consolidation, which involves more time and effort, but may suit your circumstances better.
While negotiating may seem intimidating, people can, and do, get positive results. A little homework and following clear steps will give you the tools you need to be one of them. The result is worth it — a lower interest rate, lower balance and a lot less stress.
“If you have a good credit score and pay your bills on time, you absolutely should call your credit card company and ask them to lower your interest rates — and the chances are they will,” said Uri Abramson, cofounder of OverdraftApps. “There is nothing to be scared about.”
How to Negotiate a Lower Interest Rate on Your Credit Cards
Before you call your card company, it’s important to arm yourself with information about the account, your credit history and even competing offers.
Write down key points, or even a script and be sure to have a pen and paper handy to take notes on the conversation.
Doing this will make it easier for both you and the person you’re talking to. It’s also the best way to get a positive result.
Check Your Interest Rate
It’s important to know what your interest rate is before you call. Interest rates can be found in a box at the top of the page on all credit card statements. Be sure to check both the purchase and cash-back rates.
Credit scores determine how much interest is charged. The higher the score, the more “credit worthy” the card holder is, and the lower the interest you’ll pay. Credit card companies won’t tell potential customers beforehand what interest rates go with what score, but, obviously, the higher the credit score the better. Scores above 740 are considered excellent. A score of 670-739 is considered good by FICO (Fair Isaac Corporation), the model most card companies use. Anything below that probably will mean an interest rate in the mid-to-high 20s.
Here’s a look at the average credit card interest rate by credit score:
|Credit Score||Interest Rate|
*credit WalletHub (January 9, 2019)
Many credit card companies offer free access to credit scores, so check your credit card company online. Try that option before paying for a score from credit reporting agencies Experian, TransUnion or Equifax.
Check Your Payment History
Look over monthly statements. Familiarize yourself with what you pay and if you pay on time. You want to have a discussion from a position of knowledge, rather than have the credit card company bring up a payment history you’re not aware of. Hardships like unemployment, divorce, an illness, or something else that caused a financial setback and led to missing payments are things to bring up. Stress that you’re committed to being a good customer and paying on time.
Check Your Credit
Knowing your credit history, aside from knowing your credit score, is also important. One figure to keep an eye on is the “utilization rate,” which is the ratio of account balance versus the credit limit. A utilization rate of 30% or lower is considered OK. In other words, a card with a $1,000 limit would have a balance of $300 or lower. Lower than 30% is better, higher is worse.
Besides trying to get the balance down, some immediate action to make you a better risk are:
- Don’t apply for any more credit. It will lower your credit score and, if it’s approved, increase your debt load.
- Get a copy of your credit report. These are free every 12 months from the credit reporting agencies TransUnion, Equifax and Experian. They’ll show your credit history, including late and non-payments.
- Make a big payment toward the balance of the card you want to negotiate.
- Set up autopay for the card you want to negotiate. Some companies offer a slight discount for paying this way.
“The best candidates are those that have displayed responsible credit card use prior to their request,” says Nathan Wade, managing editor of WealthFit Money. “You want to do your best to prove you’re not a big risk prior to negotiating. Credit issuers will be more likely to work with you if you’ve showcased a healthy relationship with your finances.”
Find Competing Card Offers
Tell your credit card company that you can get a lower rate from someone else. They don’t want to lose your business if you’re a good customer. You need actual offers to give this leverage. One place to start looking is your mailbox. If you use credit cards, you should be getting competing offers online and by snail mail.
“There are chances you receive some new credit card offers with zero APR introductory rates in your junk mail,” Abramson, of OverdraftApps, says. “But don’t try to bluff your way through — make sure to have one of these offers handy in case the agent asks for more details.”
Call Your Credit Card Company
Ready to make the call? Tell the person who answers you’d like to discuss lowering your rate.
If they can’t help, ask for a supervisor or say, “Can you connect me to someone who may be able to help me?”
Abramson advises to “be unfailingly polite under all circumstances, even when things don’t go exactly your way.”
If you’re not getting anywhere, it’s all right to start over with someone else. “Educated consumers know that doing a HUCA (Hang Up and Call Again) when you’re dealing with an uncooperative agent is often a key to success,” Abramson says.
Take Note of Their Name and Direct Phone Number
Once you’re connected to someone who can help you, be sure to get their name and a call-back number in case you get disconnected. You don’t want to go through all the preliminaries again, and it also shows them you’re serious about the discussion.
Request a Lower Interest Rate
Be sure to have your talking points written down and have a pen and paper handy to take notes on what they tell you. Check off your points as you make them.
It’s a good idea to say the name of the company you’re negotiating with, rather than “you.” That sets a more professional tone and doesn’t put the person on the other end of the line in a defensive position.
It helps to write a script. For instance: “Hi, my name is ________ and I’d like to lower my interest rate of __%. I’ve been a customer since ___ and always made my payments on time. My credit score is ____ which is considered [good/excellent] …”
When discussing competing offers, which should come after you explain why you’re a good customer and want to stay with the company, be specific and matter-of-fact: “I qualified for _____’s card, and they’re offering __% interest, so another option for me would be to transfer my balance to them and close my account with [name of company you’re negotiating with].”
Even if you don’t have a script, be sure to write down your talking points, followed by any details you think are necessary to mention:
- Credit score
- Payment history
- Overall history with the company
- Competing offers.
Be flexible with the script if the responses lead in a different direction. Let them talk and don’t interrupt. But be sure to get your points in. If you haven’t had a chance to make your whole pitch, it’s all right to say “May I tell you the other reasons I think I’m a good candidate for a lower rate?”
If Your Request for an Interest Rate Reduction Is Denied
If they tell you they can’t lower your rate, don’t argue. Politely ask them why – it can help you work toward improving the negatives. You can call again in a few months if you’ve made some headway.
If your credit score or amount of credit owed are barriers to getting the interest rate lower, and you feel like it’s going to take too much time to make changes that will see results, it’s time to consider consolidating your credit card debt.
Lowering Your Interest Rates through Debt Consolidation
Debt consolidation is a way of taking matters into your own hands and proactively attacking your debt. This is particularly a good solution if you have more than one high-interest credit card. Options range from debt management to other interest-bearing credit solutions. There are upsides and downsides to all of them, and none will eliminate what you owe.
Debt management will lower the interest rate you pay on your debt load, while working with one monthly payment that fits your budget. The interest rate is lower, usually around 8%, so your balance is reduced faster. Having just one payment, instead of juggling several, also makes paying easier. A counselor from a nonprofit credit counseling agency works with you on a budget and determines the best payment option. The nonprofit agency deals with the credit card companies to get them to lower their interest rate and accept a lower monthly payment.
The downside is that it can take three to five years to pay off what you owe and you can no longer use the credit cards, except one for an emergency.
Debt Consolidation Loan
A debt consolidation loan, like a debt management plan, combines unsecured debt into one monthly payment and can take three to five years to pay off. It differs in that the interest rate can vary from 5% to 36%, depending on your credit score, similar to credit card interest rates. Also, there are penalties if you miss or are late with payments. A credit score below 670 means interest rates that range from 16% to 20% or higher, depending on the type of lender.
A balance transfer is when you transfer the balance of a high-interest credit card, or cards, to a card with a 0% interest rate. The upside is an immediate lower rate, allowing you to attack the balance, if you qualify. It normally takes a credit score of near 700 to get one of these cards Another downside is that the new card will often charge a balance transfer fee, usually something like 3% or 5% of the balance. The low “introductory” rates are also temporary, and not paying off the balance every month or paying just the minimum can led to a higher interest rate. If you can qualify and have a plan to pay the balance off before the introductory rate expires, it can be a good option for credit card debt consolidation or refinancing.
Borrowing from Assets
Borrowing from assets most often means refinancing a mortgage or taking out a home equity loan. The benefit of this is that interest rates are much lower — currently in the 4% to 6% range. The downside is, it increases the time it takes to pay off your mortgage and puts your property at risk.
About The Author
Maureen Milliken has been writing about finance, banking, investment, entrepreneurship, real estate and other related topics for more than 30 years. She started as the “Business Beat” columnist for the now-defunct Haverhill (Mass.) Gazette and currently is one of the hosts of the Mainebiz business-focused podcast, “The Day that Changed Everything” in addition to her daily writing. She also is is the author of three mystery novels and two nonfiction books.
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- McCann, A (2019, January 9) What Is the Average Credit Card Interest Rate? Retrieved from https://wallethub.com/edu/cc/average-credit-card-interest-rate/50841/
- myFICO (2016, September 26) Credit Scores 101: What's a Good Credit Score Range? Retrieved from https://blog.myfico.com/whats-a-good-credit-score-range/
- NA, ND Home equity current interest rates, retrieved from https://www.bankrate.com/home-equity/current-interest-rates/