How To Lower the Interest Rate on Your Credit Card

Paying down a credit card balance has never been harder. That’s because interest rates have never been higher.

The average credit card interest rate rose to 22.8 % in 2023, the highest percentage since the Federal Reserve started collecting this information in 1994.

What does that mean for average consumers? Nothing good.

What does it mean for credit card companies? Wealth. The Consumer Finance Protection Bureau (CFPB) reports that in 2022 credit card companies charged $105 billion in interest.

As interest rates rise, paying down credit card debt becomes more challenging, especially for those who don’t pay off their balance every month. When that happens, the monthly payment disappears into a black hole and the balance never gets smaller.

The best way to  reduce a credit card balance is to negotiate a lower interest rate with your credit card company. It is a simple, straightforward approach.

Another option is debt consolidation, which involves more time and effort, but may better suit the circumstances.

While negotiating a better rate may seem intimidating, people can, and do, get positive results. A little homework along with following clear steps gives borrowers the tools to succeed.

The result is well worth it — a lower interest rate, lower balance, and a lot less stress.

What Is a Good Interest Rate on a Credit Card?

Stunning as it may sound, an interest rate of 20% on a credit card is a good rate — because that percentage is lower than the average. Some card companies charge a higher rate than the average, some lower. Typically, the interest rate is based on the borrower’s credit score.

A credit score above 740 might get a rate of 16%, a  credit score below 580 may see that rate soar to 30%.

Where to find relief? The Consumer Financial Protection Bureau (CFPB) reports that credit unions and small banks tend to charge lower interest rates than larger banks and/or card companies. That rate may go as low as 15% for those with excellent credit scores.

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.

Here’s a look at the average credit card interest rate by credit score:

Assess Your Current Situation

The first step in dealing with credit card debt is understanding how much is owed, to whom, and the interest rate being charged.

Then it’s important to know income. This helps you set up a budget that can reveal how much of income can be applied to eliminating credit card debt.

To start, lay out the latest credit card statements. Note how much is owed, the minimum monthly payment, the interest rate, and any fees. Credit card companies have to list fees and interest charges separately on bills, and the interest rate must be listed by type of transaction (a cash advance may have a higher interest rate than a purchase).

The next important step is to understand your credit score. Many banks and credit card companies provide this service free to their customers.

A nonprofit credit counselor also can help find the score and offer advice on ways to deal with a low score or high amount of credit card debt.

If none of those work, everyone is entitled to a free copy of their credit report once a year from each of the three major credit bureaus – Equifax, Experian and TransUnion.

By reviewing multiple credit card statements and credit reports, any consumer should be able to gather  a comprehensive view of their credit and financial situation.

This comprehensive view is the first step toward reducing and eventually eliminating credit card debt.

Strategies to Lower Your Credit Card Interest Rate

The direct step to a lower interest on credit cards is to call the card company and ask for a lower rate.

However, no call should be placed to a card company without ready information about the account, your credit history and even competing offers from other card companies.

When calling, don’t be nervous. These are people just like the rest of us, and often a credit card company will work with a borrower because doing so helps ensure payment. 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.

Negotiate Directly with Your Credit Card Issuer

Negotiating with a credit card company requires a certain amount of courage as well as honesty. Be prepared. Know your credit standing, credit score, and have specific competing interest rates ready.

Be honest and simply state you’d like to discuss lowering your interest rate. Dancing around the topic won’t help anyone. Just state the issue up front, and if the person on the other end doesn’t want to help, use the information you’ve gathered and point out how it might be advantageous to you to use another card or to transfer the balance to another card.

In addition, use your best qualities to your advantage. If you pay regularly, point that out. If you’ve experienced misfortune that led to the problem, point that out.

Just be sure when calling that you understand your credit standing and have specific rate requests available based on your research.

Balance Transfer Credit Cards

A balance transfer involves transferring 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 is that it allows you to attack the balance – if you qualify.

It normally takes a credit score of 680 or better to get one of these cards. Another downside is that the new card often will charge a balance transfer fee, usually 3%-5% of the balance. Some offers, though, reduce the fee to $10. It’s important to read the details.

The low “introductory” rates generally last 12-18 months, and not paying off the balance during the introductory period or  paying just the minimum can lead to a higher interest rate.

If you qualify and have a plan to pay the balance before the introductory rate expires, this can be an option for credit card debt consolidation or refinancing.

Opt for a Debt Consolidation Loan

A debt consolidation loan combines unsecured debt into one monthly payment and can take 3-5 years to pay off. The interest rate can vary from as little as 5% to as much as 36%, depending on your credit score. Also, there are penalties if you miss or are late with payments. A credit score below 670 could mean interest rates that range from 16% to 20% or higher, depending on the lender.

Improve Your Credit Score

Improving your credit score will help increase the chances of a lower credit card interest rate. How do you do that?

One way is to keep your credit utilization rate — the ratio of account balance to the credit limit — at 30% or less. For example, a card with a $1,000 limit would have a balance of $300 or lower at the end of every billing cycle. Lower than 30% is better. Over 30% is worse.

Another step that can help is to make a large payment, which will reduce the balance of the card. That will show the card company you are serious about eliminating debt when you call.

Also, set up autopay for the card you want to negotiate. Some companies offer a slight discount for paying this way.

Two things not to do:

• Apply for any more credit. It will lower your credit score and, if it’s approved, increase your debt load.
• Continue using credit cards while debt is pending. Adding more debt to current debt makes the problem worse.

Consider a Credit Counseling Service

A nonprofit credit counselor’s job is to find the best debt-relief solution for each individual financial situation. Credit counseling involves listening to the consumer’s financial problems, then providing advice on budgets, managing money, reducing debt and other important financial challenges.

This may lead to finding ways to better manage debt and provide advice on negotiating lower interest rates.

A counselor may suggest enrolling in a debt management plan, which consolidates debts into a single monthly payment at a lower interest rate than credit cards charge. It typically takes 3-5 years to complete the program.

Assess Your Current Situation

When calling a credit card company, it’s important to have a list of pertinent information.

First, know the current interest rate. This can be found on all credit card statements. Be sure to check both the purchase and cash-back rates.

Next, check your payment history by looking over 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 mention. 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 “creditworthy” the cardholder is, and the lower the interest paid.

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 will mean an interest rate in the high 20s.

Many credit card companies offer free access to credit scores. That information should be available in the online account information. Try that option before paying for a score from credit reporting agencies Experian, TransUnion, or Equifax.

Does Asking for a Lower Interest Rate Affect Credit Score?

Asking for a lower interest rate should not affect your credit score. However, if the card company has to do a hard inquiry into your credit history to determine whether you qualify, your credit score may drop by a few points for up to a year. That’s not much of a hit, and in the long run it can be beneficial. A lower interest rate helps pay a balance sooner, which in the end can improve the credit score.

If Your Request for an Interest Rate Reduction Is Denied

If the credit card company denies the request for a lower rate, don’t argue. Instead, politely ask why. Knowledge  can help you understand what steps are needed to improve the situation. Once those steps are taken, call again in a few months.

Try Again in 3-6 Months

A credit card company may be more flexible on the second request, especially if you’ve taken steps to improve your financial picture. Call the card company a second time 3-6 months after the first rejection and make the request again. The worst that can happen is they say no again, but if you make your payments on time during that period, it provides evidence you’re a responsible borrower. If you have gotten any other lower-rate offers during that time, make sure to bring that up.

Ask for a Temporary Break

If the card issuer balks on lowering the 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.

Debt Avalanche

One 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. In the long run, this will save the most money.

Speak to a Nonprofit Credit Counselor for Help Lowering Your Interest Rate

If the situation has you frazzled, a nonprofit credit counselor can provide a supportive and helpful ear.

These counselors help identify the best ways to get out of debt. They are required to offer the best solution for each situation while also assessing the entire financial picture.

Another perk: If getting a lower credit card interest rate is needed, credit counselors typically have working relationships with creditors and can help with negotiations.

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, debt settlement or getting a better credit card rate.