Did you know that the credit card interest rate is bound to change this 2016? According to an article published on WashingtonPost.com, the Federal Reserve voted to raise the interest rates back in December 2015. The near-zero rates will now be between 0.25% to 0.5%. The Fed held back in increasing the rates to help the economy recover from the Great Recession. But now that the unemployment rate is down and the economy is gaining steam in its recovery, the Fed decided that it is high time for them to increase the interest rates.
When this happens, the rest of the financial industry will start planning to raise their respective rates. That includes the credit card issuers. If you think that your credit card interest rate will stay the same, you are mistaken. It will change and if the trends will not change, it will go up this 2016.
Before they raise the interest of your credit card, you need to work on your debt. You have to start paying off the balance so you will not be left with a high debt and a high-interest rate. Every time you carry your balance to the next billing cycle, a finance charge will be capitalized into it. This charge is computed based on your balance and the current interest rate. The higher the interest, the higher the finance charge that will be capitalized into your balance. If you do not do something about your credit cards before the interest rates go further up, you might end up with a big debt that is increasing at an alarming rate.
4 tips to help lower the interest on your credit cards
Although there is nothing you can do to stop the increase that the Federal Reserve will initiate, you are not completely powerless when it comes to your own credit cards. Believe it or not, you can do something to help lower your interest rate. This will minimize the effects of the Federal Reserve’s action on your own credit accounts.
Here are the 4 ways that you can influence your own credit card accounts so you can lower their respective interest rates.
Raise your credit score.
According to an article from NYTimes.com, consumers seem to be better at taking care of their credit scores lately. This is probably caused by the lessons learned during the Great Recession. Raising your credit score is probably the best way that you can lower your rate without talking to your creditor. A good credit score is an indication that you are a responsible credit borrower. Lenders and creditors impose high interest rates because they want to protect themselves from borrowers who are more likely to run off and leave their debts unpaid. But if you can prove to them that you are a responsible and low-risk borrower, then they do not need to protect themselves through a high-interest rate. They can give you a low rate and still be confident that you will stay true to your credit obligations.
Open an account with a new credit card company.
Credit cards are notorious for their high-interest rates. This is why creditors use low-interest rates to attract consumers to get a card from them. So if you want a low-interest rate, you may want to look for a new card and transfer the existing balance of your old account to the new one. Of course, this has to be done smartly. You should only open one account because too many applications will pull your credit score down. Not only that, you should read the fine prints in your card. Most of the time, the low interest is only an introductory offer. It usually changes (or increases, to be specific) after a couple of months. You need to be ready for this so you can pay off your balance before it happens.
Enroll in a debt relief program.
Another tip to help you lower your credit card interest rate is to enroll in a debt relief program. To be specific, you need debt management. This program involves the help of a professional credit counselor. What they will do is to help you pay off your debts by handling all your payments. They will help you come up with a payment plan that your budget can comfortably afford. The result is usually a low monthly payment. One of the things that the credit counselor will do for you is to negotiate a low-interest rate for your credit card accounts. They will not guarantee that they will be successful but they will try to get it done for you.
Negotiate with the creditor.
The last option to help you get a lower credit card interest rate is to call your creditor to negotiate yourself. Some people may feel intimidated to do this but believe it or not, there are consumers who have done this and were rewarded with lower interest rates. You simply call your creditor, tell them that you are going through a tough financial situation and request for a lower rate to keep you from defaulting on your payments. Usually, those who are ill and going through an expensive medical treatment are granted a lower interest rate – even if it is just for a short period of time. You can also make this request if you are a good credit borrower – meaning you pay your dues on time. Some consumers are sneaky enough to bluff their way through it. They tell the creditor that another company offered them a new credit card with a lower interest rate. Instead of immediately going for the new card, they called their current creditor to check if they can offer the same or a better credit card interest rate. You need to be careful with this if this is what you plan to do. And make sure you are ready to transfer your balance in case the creditor calls your bluff.
You can choose only one to help lower your interest rate or you can combine two of these to help lower your rates further. It all depends on your credit behavior and specific financial situation.
Important facts about the interest rate of credit cards
It is not enough that you lower your credit card interest rate to help save money. You need to understand what is involved so you will know how to minimize its effect on your card balance. Here are some important facts that you should know.
- If you pay the full balance within the grace period, the interest will never be capitalized into your balance. This is the time between your purchase and the due date of the next billing statement where it is included. You need to pay your balance within this time frame to avoid incurring finance charges.
- One credit card can go through a lot of APRs. If you got a low-interest rate in a new credit card, you need to know that this will not last. The creditor usually changes the rate and makes it higher after 6 to 12 months. Even the 0% interest that is common in balance transfer cards will not last forever.
- The creditor can increase their credit card interest rate without reason – but they have to inform you before it is implemented. Even if you are a good credit card owner and you pay your dues on time, the creditor can still raise your interest rate. Make sure to check that they informed you of this raise at least 45 days before implementing it.
- It is your right to inform the creditor that you do not want to accept the interest rate increase. Some people do not know this but you have every right to not accept the high-interest rate that your creditor is offering. After receiving the notice that they will raise your rates, you can call them and let them know that you cannot accept the increase. There are three ways that this can go. The first is they will agree to not increase your rate and retain the old one. The second is you will both agree to a new rate that may be higher but you can afford. The last is you will close your account and agree to an affordable repayment plan.
- A 0% interest rate on a credit card may not exactly be true. An article from NerdWallet revealed that some companies advertise 0% rate but fail to say upfront that it is only for purchases made through the card. The article advised that the consumer should look at the black and white table in the credit card offer to see the transactions not covered by the 0% interest (e.g. cash advance, balance transfer, etc.)
By knowing these facts about a credit card interest rate, you should be able to make smarter decisions about your credit purchases and your overall financial transactions.