Credit Card Interest Rates & What To Do About Them
Unless you only use cash to buy things and you inherited all your earthly possessions (thanks, Grandpa and Grandma!), chances are, you have a credit score, and with that, loads of credit offers from various banks and lenders. In fact, if you're like many Americans, you've probably got one, or two, or three (or more) cards in your back pocket on any given day. So naturally, you think to yourself, "Hey! Credit institutions like me! They think I'm trustworthy. It must be safe for me to get this shiny new card from them." But credit companies offer cards to people with a wide range of credit scores, and typically lure borrowers in with big promises (lots of airline miles! low interest rates! 0% APR on balance transfers!) that don't always work out in the borrowers' (that's you) favor.
If you're not careful, you may end up getting stuck in a vicious cycle of credit card debt. So let's go over a few basics of credit card ownership, specifically credit card interest rates, and how they effect you.
Why Your Credit Card Interest Rate Matters
Interest rates matter because the amount of interest you pay on a loan--whether it's a student loan, a car loan, or credit card debt--directly influences how much of your monthly payments is going toward paying down your debt, and how much of it is going to the lender. The higher the interest rate, the more your payment is just going to keep the collections agency at bay. The lower your interest rate, the more likely you are to pay your debt off quicker.
0% Credit Card Interest Rates: What To Keep In Mind
One of the main types of credit card offers out there is the "0% APR introductory" credit card offer, which means that for a certain amount of time, new purchases and balance transfers won't carry any interest.
Pro: NO INTEREST! Whooppee! That's like borrowing money, and only having to pay back that exact amount, instead of "extra" money (i.e., interest charges on top of the purchases you made). If you have a high interest rate on one or more of your existing credit cards, you may want to consider transfering those balances to the new card, so that all of your payments go directly toward paying down your debt.
Con: These offers always have an expiration date, and just like Cinderella, your once beautiful opportunity will eventually turn back into just any old credit card. Beware of credit cards whose APR will kick in at a high interest rate once the honeymoon perior of 0% APR is over.
I Don't Have a 0% Card Offer--Can I Still Get a Lower Interest Rate?
If you've been keeping up with your personal credit score, and you've been making consistent monthly payments for a long time, you may be able to get your current credit card company to lower your interest rate. Because informed consumers make the best consumers, we highly encourage you to know just how much of a credit risk you are to financial institutions (like credit card companies) before you pick up the phone to ask for a lower rate. So, check those credit scores, and see how you're doing--there's nothing worse than walking into a negotiation armed with...nothing. If your current credit score isn't great, consider building it up a bit before you ask for an interest rate reduction. Also, research your credit card ahead of time, so you know what the expected interest rate range is. If you've got a high interest rate, but it's the lowest the company offers for your card, consider asking them to increase your spending limit (but don't use that new limit as an excuse to spend more), so that you're using less of your card's total available credit limit. (Pro tip: This is one of many ways to help your overall credit score.)
So back to that phone call with your credit card company. Here's the thing: companies lower interest rates ALL THE TIME for their customers--but they're sure as heck not going to call you up to let you know you qualify. You have to take the initiative. However, picking up the phone and spending five minutes getting your interest rate adjusted could literally save you hundreds if not thousands of dollars in credit card debt every year. Is it as simple as just asking? Pretty much. So what are you waiting for? Get on that phone!
Got any great credit card tips for us or our readers? Please sound off in the comments!