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.
Paying down a credit card balance has always been difficult, and it’s never been harder. That’s because interest rates have never been higher.
The average credit card interest rate hit a record high of 18.94% on Nov. 2, 2022, a full 2.77 percentage points above where it was eight months earlier. With the Fed announcing yet another .75-point increase the same day, credit card rates are likely to go even higher.
What does that mean for average consumers? Nothing good.
As interest rates rise, paying down your credit card debt becomes extraordinarily hard, especially for those who don’t pay off their balance every month and are paying 20% or higher interest rates. When that happens, your monthly payment disappears into a black hole and the balance never gets smaller.
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 a better rate 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.
What Is a Good Interest Rate on a Credit Card?
With interest rates on the rise, what should you be aiming for is anything below 14% APR, and you’ll need a good credit score to get it. If you have exceptional credit, you might qualify for something at 10% or even better. If your credit is bad, the best you’re likely to get will be 20% or even much higher.
Credit unions tend to offer the best credit card rates, some as low as 6% for their most creditworthy members. On the other end of the spectrum, store credit cards, secured credit cards, travel rewards and cash-back credit cards tend to have higher interest rates.
Improving your credit score can help you get low-interest credit cards. Here’s a look at the average credit card interest rate by credit score:
|Credit Score||Interest Rate|
Benefits of a Lower Credit Card Interest Rate
The math on interest rates is simple: The lower your rate, the less you’ll pay. That not only means you’ll pay less interest over time, but it gives you the opportunity to pay off debt faster. If you can afford to pay more than the minimum payment – and you should ALWAYS pay more than the minimum – the extra money you pay applies to the principal that you owe. Paying it off sooner should be your goal.
If your credit is good, you may qualify for balance transfer cards that charge 0% interest during an introductory period before a higher rate kicks in. You can use that time (usually for 12-18 months) to pay down or pay off the entire credit card debt.
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.
1. Evaluate Your Financial Situation
First, know what your current 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.
Next, check your payment history by looking over your monthly statements. Take note of what you pay and if you pay on time; you can be sure the credit card company will know. 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.
Then, check your credit. Credit scores determine how much interest is charged. The higher the score, the more “credit worthy” the cardholder 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. Anything below that probably will mean an interest rate in the mid-to-high 20s.
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.
2. Improve Your Credit
Improving your credit score will help increase your chances of getting a lower credit card interest rate. So, how do you do that?
One way is to keep your credit utilization rate — the ratio of account balance versus the credit limit — at 30% or less. For example, a card with a $1,000 limit would have a balance of $300 or lower. Lower than 30% is better. Over 30% is worse.
Besides trying to get the balance down, some immediate actions 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.
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.
3. Find Competing Card Offers
Credit is a competitive industry, so card issuers and banks are looking for new customers all the time. So, look at what’s available. When you find a card similar to yours that has a better rate, pay attention to the company, the card’s name and its terms. Have this information available to you when you reach out to the bank.
4. 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?” Be polite. This is business. Don’t take things personally.
If you’re not getting anywhere, start over with someone else. 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.
5. 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 the 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?”
Does Asking for a Lower Interest Rate Affect Credit Score?
Asking for a lower interest rate will not directly impact your credit score. However, if the card company has to do a hard inquiry into your credit history to determine whether you qualify, that will drop your credit score by a few points for up to a year. That’s not much of a hit to your score, and if getting a lower interest rate helps you pay off your balance sooner, that can actually improve your credit score.
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 a few months later if you’ve made some headway.
Try Again in 3-6 Months
If the card company turns you down, wait 3-6 months and ask again. It can’t hurt, and if you make your payments on time during that period, it provides evidence that you’re a responsible borrower, which the company may reward the next time you ask. If you have gotten any other lower-rate offers during that time, make sure to bring that up.
Ask For a Temporary Break
Even if your card issuer balks on lowering your rate permanently, ask for a temporary break such as a one-year reduction of 1-3 percentage points. If your credit score has gone up, offer that as evidence that you’re able to make payments on time.
A solid strategy for paying down debt is using what’s called the debt avalanche method. Pay off your cards with the highest interest rates first. To make this work, pay only the minimum payment on other cards while paying as much as you can on the card with the highest interest rate. Once you’ve paid it off, use the same strategy for paying off the card with the next highest rate. Repeat this strategy until you’ve paid them all off. You’ll save the most money in interest this way.
Lowering Your Interest Rates through Debt Consolidation
Consolidating your credit card debt is another way of taking matters into your own hands. This is a particularly good solution if you have more than one high-interest credit card. Options range from debt management to taking out loans and settling by paying less than what is owed. 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 3-5 years to pay off what you owe, and you are required not to 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 3-5 years to pay off. It differs in that the interest rate can vary from 5% to 36%, depending on your credit score. 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 new 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 nearly 680 or better to get one of these cards. Another downside is that the new card will charge a balance transfer fee, usually something like 3%-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 lead 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 — around the 6% range. The downside is, it increases the time it takes to pay off your mortgage and puts your property at risk.
Speak to a Nonprofit Credit Counselor for Help Lowering Your Interest Rate
There’s no reason you should have to attack this problem by yourself. Consider talking to a nonprofit credit counselor. They can help you identify the best ways to get out of debt, and you may discover that credit cards are only part of your problem.
If getting a lower credit card interest rate is what you really need, they typically have working relationships with creditors and can help you negotiate.
Credit counselors can help you see the big picture of your debt situation and can help you navigate the most effective strategy, whether it’s debt management, debt consolidation or getting a better credit card rate.
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.
- Dilworth, K., and Porche, B. (2022, November 2) Average credit card interest rates: Week of Nov. 2, 2022. Retrieved from http://www.creditcards.com/news/rate-report/
- McCann, A. (2022, October 31) Average Credit Card Interest Rates. Retrieved from https://wallethub.com/edu/cc/average-credit-card-interest-rate/50841