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WalletPrep worksheet · Debt

How to lower your credit card interest rate

Name ____________________ Date __________

Key ideas

  1. You can ask for a lower rate anytime. Card companies want to keep customers who pay on time. Asking costs nothing and does not hurt your credit score.
  2. Six points lower saves real money. On $6,000 at $250 a month, 21.99% instead of 27.99% saves about $919 and 4 months.
  3. Six on-time payments can undo a penalty rate. If your rate rose because you were over 60 days late, six on-time minimum payments in a row restore the old rate.

Vocabulary

APR
Annual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.
Hardship program
A temporary arrangement from a lender or card issuer that lowers your rate, payment or fees after a setback like a job loss or medical bill.
Balance transfer
Moving debt from one credit card to another, usually to get a low or 0% promotional APR for a set number of months.
Credit union
A not-for-profit financial cooperative owned by its members, offering checking, savings and loans much like a bank.
Debt management plan
A repayment plan set up by a credit counseling agency, where you make one monthly deposit and the agency pays your unsecured debts, often at lower rates.
Minimum payment
The smallest amount you must pay on a credit card or loan by the due date to keep the account in good standing.

Work it out

Dana owes $6,000 on a card at 27.99% APR and pays $250 a month. She calls, mentions a competing offer, and the issuer lowers her rate to 21.99%.

  1. Interest in month 1 at 27.99%
  2. Interest in month 1 at 21.99%
  3. Saved in month 1
  4. Payoff at 27.99%: months
  5. Total interest at 27.99%
  6. Total interest at 21.99%
  7. Interest saved
  8. Payoff at 21.99%: months

Check yourself

  1. Your balance is $4,000 at 24% APR. About how much interest is charged in one month?

    • A. $40
    • B. $80
    • C. $96
    • D. $960

  2. Your rate went up because you were more than 60 days late. What restores the old rate?

    • A. Paying the balance in full
    • B. Six on-time minimum payments in a row
    • C. Opening a new card
    • D. Nothing can restore it

  3. Which is the best first step to lower your card's APR?

    • A. Call your issuer and ask
    • B. Stop paying until they lower it
    • C. Close the card

Your turn

Find your current APR on your statement. Then call the number on the back of the card and ask for a specific lower rate, using the script above. Write down who you talked to and what they said.

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Answer key

How to lower your credit card interest rate

Work it out

  1. Interest in month 1 at 27.99%$139.95
  2. Interest in month 1 at 21.99%− $109.95
  3. Saved in month 1= $30
  4. Payoff at 27.99%: months36
  5. Total interest at 27.99%$2,897
  6. Total interest at 21.99%− $1,978
  7. Interest saved= $919
  8. Payoff at 21.99%: months32
  1. One month of interest at 27.99% is $6,000 × 27.99% ÷ 12 = $139.95. At 21.99% it is $109.95, so $30 more of her first payment goes to the balance.
  2. Paying $250 a month, the balance takes 36 months and $2,897 in interest at 27.99%, but 32 months and $1,978 at 21.99%.
  3. $2,897 − $1,978 = $919 saved for one phone call, and she finishes 4 months sooner.

Check yourself

  1. B. $80 $4,000 × 24% ÷ 12 = $80. Monthly interest is the balance times the APR divided by 12.
  2. B. Six on-time minimum payments in a row Under federal rules, the issuer must restore the old rate after six consecutive on-time minimum payments when a 60-day late payment caused the increase.
  3. A. Call your issuer and ask Asking is free and often works. Missing payments or closing the card can hurt your credit and raise what you pay.