Interest Rate Reduction: 3 Ways To Reduce Your Rates
The holidays are over, routines are back in order, and by now many, if not most of our resolutions have fallen by the wayside. Now is a great time to sit down, open up your credit card statement, and start thinking about rate reduction. Like most Americans, we underestimate how much we spend by about 30% when using a credit card vs. cash, which can lead to carrying a balance on credit cards.
Looking at the looming balance in front of us can feel overwhelming as the interest racks up. But fear not! There are a few things that can be done to try and lower your interest rate and save you money. Read below for a few tricks to get yourself back on track to becoming debt free.
1) Call the credit card company and ask for a temporary or permanent interest rate reduction
When I worked as a banker I often had customers come in who were stressed about their interest rates. One of my first steps was to see if I could reduce the interest rate on their current credit card. Most often people were eligible for a temporary interest rate reduction anywhere from 3-9 months. Check with your own financial institution or credit card company for an offer specific to you. This should be your first step because you will start saving money right away on interest.
2) Explore other credit card offers with a 0% balance transfer introductory rate
I don’t typically promote going out and getting yet another credit card; but sometimes it can be the right move when done wisely. A lot of financial companies will offer introductory rates to entice people to switch credit cards, and along with it, move a balance from the prior credit card. This may make sense for people looking to get a balance into on a card with a 0% interest rate so they can do serious work against the principal instead of paying interest. Evaluate your own situation and see if a balance transfer is right for you.
Things to think about when doing this are:
- How long the 0% is good for?
- What will the rate go to after the intro rate is over?
- What is the balance transfer fee to move your balance from one card to another? (Typically this is a 3% fee but read the fine print to be certain.)
- There are helpful calculators on the web to show you much you can save by moving a balance to a 0%. Play around until you find a solution that fits your budget and can save you money.
3) Consider a consolidation loan to reduce your interest rate
If you want to avoid having another credit card bill to worry about, or you want to be done with credit cards altogether I recommend looking into a consolidation loan. Financial institutions offer unsecured loans that can have interest rates lower than some credit cards. These loans a great for tackling several credit cards at once and geting them into a fixed monthly payment with a fixed rate (again check the fine print but most financial institutions will offer a fixed rate on these types of loans). This can also help a hurting credit score as it shows lenders that there is a fixed timeline for paying off the debt while a credit card can drag on forever when people only make the minimum payment and accrue more and more interest. (Hint: If you are a homeowner and have equity to borrow against that is an even cheaper loan to reduce credit card debt and may be tax deductible, consult your financial advisor for tax purposes.)
Reducing your interest rate on a credit card or loan has very positive benefits from reducing the overall amount paid in interest expense which will allow you to chip away at principal more quickly. Taking these simple steps can save you time and money and get you back on track to a stable credit future. Take some time to evaluate if you have any interest rates that can be reduced today.