Need a better interest rate?
Everyone’s attracted by the lure of a 0% introductory interest rate on a new credit card - and it can be a savvy way to pay down an accrued balance on another card if you act quickly. But what happens when your zero rate expires, you’re still holding a substantial balance and suddenly you find yourself staring down the barrel of a punishing hike to 20% or 25%? It’s sensible to be worried. Credit card interest rates can sap your finances like a leaky roof. Every twenty bucks you spend on a concert tickets or a visit to the cinema can end up costing half as much again if you don’t pay it off promptly. Worst case, it can take months or years to pay off a trip to see a B-list band or a cheesy movie you’ve already forgotten. On the other hand, find a way to slash your interest rates and you can pay down way more than the monthly minimum to break your debt stranglehold.
How low can you go?
There are only two ways to go when looking to lower your credit card interest rate: either negotiate a better rate or transfer your balance to a lower rate card. Although it may seem like an uphill struggle, striking a deal with your existing credit card provider might be the best way to go. Remember, every time you apply for a new card you risk denting your credit score and materially damage your chances of getting the best interest rates. However, window shopping for keen rates will give you leverage with your provider, who’ll often agree to match, or come close to, a competitor’s offer. Work back from your oldest card (loyalty counts) and simply call customer services and ask for a better rate. Show you’ve done your homework and put the ball firmly in their court – mention how long you’ve been a customer and say you’ve been offered a better deal by a new provider before asking if they’ll match it. Be polite but persistent and you might be surprised by the results.
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Be a smart borrower
Keep a close eye on all your borrowing and make a note of when any special deals end and when interest rates are set to rise. Even a month’s worth of higher charges will impact your wallet. So, pay off your balance – or transfer to another card – before the rate expires. Make monthly payments that meet at least the minimum amount due in full and on time or you’ll pay handsomely for the privilege. Paying the minimum on existing debt may suggest to potential lenders that you’re struggling to keep your head above water, making it less likely they’ll lend to you at a competitive rate, if they'll lend at all. So, pay more when and where you can. Also, try not to exceed about a third of your total credit limit – keeping credit utilization below 35% will give you the best chance of securing the lowest interest rates, or at least avoiding the highest. Check your credit score on a yearly basis so you’re aware of any issues or fraudulent activity that could impact your credit-worthiness.
Tips for paying down credit card balances
- It’s a good idea to have some cash stashed away for emergencies. But, as it’s unlikely that your savings will be earning anything like the interest you’re paying to service your credit card debt, it makes sense to use savings you don’t need to pay off your balance.
- Focus on paying off the card with the highest interest rate first, while making minimum monthly payments on any others. When you’ve zeroed your balance on this card, you can use the extra money to target your other cards from highest to lowest rates.
- If the idea of consolidating your credit card debt into a single amount with a defined end-date, consider shopping around for a fixed-rate, fixed-term, unsecured loan with monthly payments you’re confident you can manage. But don’t use it as an opportunity to rack up fresh debt on your credit cards!
