Credit card interest rates can be extremely high, especially if you have a subprime credit score. As of September 2018, the national average interest rate on new credit card offers was 16.6%, according to Experian. If your lender is charging you more than that, there may be ways to reduce your APR and monthly payments so that you can pay off your balance faster and save money in the long run. Make no mistake: If you can’t pay off your balance at the end of each billing period, credit cards are not the right financial tools for you right now. But if you’re ready to get started on a plan to repay your balances responsibly, read on to see how you can reduce your interest rate and monthly payments on a new or existing credit card balance.
Check your credit card terms and conditions
If you’re already carrying credit card debt, your first step should be to read — and understand — the terms and conditions that apply to the account. Most credit card companies provide information online about how much you’ll pay if you carry a balance and how that amount is calculated. You can also get an estimate of how long it will take you to pay off your credit card debt by visiting the Federal Trade Commission’s Credit CARD Act Database. You’ll find a wealth of information about the terms and conditions associated with your card, including: How much you’re allowed to charge each month. Your current interest rate and any recent changes to that rate. Whether you’re paying a standard interest rate or a promotional APR (or, less frequently, a discounted APR for a certain type of cardholder).
Transfer your balance to a 0% APR card
If you have good (or even average) credit, you might be able to transfer your current credit card balance to a card offering a 0% APR introductory period. These cards typically only accept new accounts with excellent credit. If you have bad credit, you may have a harder time obtaining a 0% credit card. It’s important to keep in mind that if you move your balance to a 0% card, you’ll need to make sure you’re paying that balance off before the introductory period ends. Otherwise, your new monthly payment will include both the amount you owe and the high interest rate that applies to that balance. If you can’t pay off your balance before the 0% deal ends, look into a balance transfer credit card with a lower APR. You may also want to consider refinancing your credit card debt to get a lower interest rate. You can get an estimate of how much you can save by refinancing your credit card debt using a credit card refinance calculator.
Define a repayment strategy
Once you know your current balance and interest rate, as well as the minimum payment you need to make each month to avoid incurring additional fees, it’s time to create a repayment strategy. It’s a good idea to go ahead and make a few minimum payments to get the account active and show that you’re taking steps to pay off your debt. If you can afford to, go ahead and make your full minimum payment each month. Alternatively, you can make a larger payment every two weeks by paying off a little bit extra each month. We recommend paying as much as you can each month, especially if you’re dealing with high-interest debt.
Pay more than the minimum each month
If you can afford to pay off your credit card balance faster, we recommend paying more than the minimum each month. You can use the extra money to pay off your credit card debt even faster or save it in an interest-earning savings account. Using the minimum payment calculator mentioned above, you can estimate how much faster you can pay off your credit card debt if you pay more than the minimum each month. Keep in mind that paying more than the minimum each month has the potential to improve your credit score over time, which can make it easier to get approved for future loans, including mortgages and auto loans.
Get help from a non-profit credit counselling agency
Finally, if you’re having trouble affording your monthly payments, you may be eligible to get help from a non-profit credit counselling agency. Credit counselling agencies help individuals in a wide variety of situations — from people who are struggling with overwhelming debt to people who need help managing debt after a loved one dies. Credit counsellors work with you to create a debt repayment plan that fits your budget and allows you to pay off your debt as quickly as possible. In some cases, you may be able to lower your interest rate or monthly payments. And in other cases, you may be able to negotiate a repayment plan with your creditors that allows you to pay off your debt over a longer period of time.
Credit card debt is something that many people struggle with. It’s important to understand how high interest rates work and how they can change to make your debt even more difficult to pay off. If you have high-interest credit card debt, it’s important to find ways to reduce your interest rates and monthly payments. You can do this by checking your credit card terms and conditions, transferring your balance to a 0% APR card, defining a repayment strategy, paying more than the minimum each month, and getting help from a non-profit credit counselling agency.