Shortcuts are great for navigating IKEA, joining your Zoom meeting on time (thanks, dry shampoo)...and paying off debt.
Well, don’t stop there.
Credit cards are notorious for charging high interest rates. Think: anywhere from 13-27%. No, that’s not a typo. If you’re paying down credit card debt, lowering your rate – even a little – can save you a LOT of time and money.
Okay, pretend you have a $2,000 balance on a credit card with a 17% interest rate. If you stick with the minimum monthly payment (let’s say it’s 3% of your total balance), it’ll take you over 11 years to be debt-free. And you’ll pay more than $1,500 in interest. But if you lower your rate by just 1%, you could pay off your debt six months faster. And save about $150 in interest.
So how do I actually get a lower rate?
Call the number on the back of your credit card and ask nicely. Seriously. One survey found that 80% of people who tried to negotiate a lower rate actually got one. So shoot your shot...after doing a little homework. Research what other companies are offering and see if yours will match or beat their rates. And be able to explain why they’d be smart to keep your business. Hint: being a longtime customer and consistently paying your bills on time are pretty convincing reasons.
Easy enough. What other tricks can I try?
Look up balance-transfer cards. The name says it all: these are credit cards you can open and transfer other balances to. They typically offer lower interest rates. And some have promo deals where you don’t pay any interest for a while.
I’m waiting to hear the catch.
For starters, these cards can be tougher to qualify for during a recession when banks are pickier about who they do biz with. If you do get one and don’t pay off your balance by the end of the promo period, you could get charged a LOT of interest on whatever’s left. Oh, and there’s usually a fee to move your balances over in the first place. Do some math to be sure the numbers make sense before you apply.
And if that’s not in the cards for me…?
You can consider taking out a personal loan with a credit union or online lender...aka a debt consolidation loan. These usually come with a lower interest rate and set repayment timeline. Pros: paying less in interest and, if you’re combining a few balances, getting one payment a month. Cons: you’ll probably need a really good credit score to qualify. And you might have to pay an “origination fee,” which could be 1-8% of the loan amount.
Paying off credit card debt can feel like you’re moving mountains. But getting a lower interest rate is a small win that can add up to big savings.
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