Negotiating lower interest rates on credit cards is often the key to paying off debt faster.
Howard Dvorkin’s two books that cover personal finance, Credit Hell: How to Dig Out of Debt and Power Up: Taking Charge of Your Financial Destiny, invoke a mantra he uses from a Bruce Springsteen song, No Surrender. It’s captured in one simple line: “No retreat, baby, no surrender.” Dvorkin, founder of Debt.com, lives that life and passes the emotion and courage to the people who ask him for financial help.
In Power Up’s introduction, Dvorkin sounds the rally cry: “Millions of Americans have suffered some sort of financial turmoil. Some fight back to regain control of their lives and some don’t. You are a fighter. You want your life back.”
In other words, “No retreat, baby, no surrender.”
When it comes to personal finance, you must fight and claw to get the best deals, and that starts with negotiating. But not many people know how, and they mostly don’t understand what their creditors want to hear. For example, planning before you call your creditors is essential. If you don’t fully comprehend the situation you’re in, how can your creditor possibly help you?
Dvorkin highly recommends negotiating and he knows the proper techniques. He is a skilled negotiator himself, having dealt with various lenders and companies over the past few decades. And during that time, he became a trailblazer in the consumer finance. Now he’s here to lend his expertise on negotiating lower interest rates on credit cards to you.
Credit Card Interest Rates
Even though a credit card issuer is under no obligation to reduce your interest rate, many will oblige if you go about asking them the proper way. And “proper” really is the keyword because the credit card company makes the final decision.
But before we begin, let’s define interest rate. Interest rate indicates the interest charged on a loan or credit card. It is specified as a percentage and it doesn’t take any other expenses into account. For example, a creditor may offer an introductory offer of 1 percent a month for 12 months and then raise the rate after that period.
On the other hand, an annual percentage rate or APR, includes the interest rate and all other costs or fees associated with acquiring loans from banks or other creditors. Right now, the average credit card APR is between 15-16 percent, but it fluctuates often. So, make sure you check the average before you call your creditors.
As for interest rates, Dvorkin says, “Always read the fine print on your credit card contract. By law, credit card companies must show your interest rate, but many people don’t pay attention and they end up paying outrageous rates.”
Paying Only the Minimum Payment Amount on a Credit Card
When you start paying only the minimum monthly payment on your credit card, trouble soon ensues. And here’s why: As you only pay off the minimum amount, your interest charges keep compiling. Very soon, you may not be paying off the balance at all and the time it takes for you to fully pay off the debt keeps rising. If this occurs on more than one card, you’ll find that your debt may grow faster than you can possibly control.
Take this example: A $5,000 credit card debt paid back on a 2% minimum payment schedule (where the minimum payment equals 2 percent of your balance).
|Percentage Rate||Time to Pay Off Balance||Total Interest Paid|
|At 12% APR||21 years, 7 months||$4,544.92|
|At 15% APR||27 years, 7 months||$7,517.67|
|At 18% APR||39 years, 4 months||$13,396.67|
|At 20% APR||56 years, 5 months||$22,126.00|
You’ll notice that once the interest goes above 12 percent on a $5,000 debt, the interest charges will be greater than the original debt if you only make the minimum payments. The outcome is a financial situation where you feel like you make payments forever but get nowhere fast.
“Paying only the minimum amount each month puts you on a ‘debt treadmill’ and it exhausts you financially, physically and emotionally,” says Dvorkin. “Pay more than the minimum amount if possible but if you can’t, it’s time to call to your creditors.”
How to use credit interest-free
If you want to avoid paying any interest, Dvorkin says you should pay off your balance in full each month. As long as you pay off the balance before the end of your grace period, no interest charges apply. The grace period is usually between 21 and 27 days. Credit card companies must mail your statement earlier, so you have time to take advance of the grace period. You can usually find the grace period listed on your credit card agreement.
Even if a credit card has no grace period, you can still use the card interest-free. Simply pay off the balance in-full by the due date. If you do this every month, interest charges never apply.
Negotiating a Lower Interest Rate with a Credit Card Company
Negotiating a lower interest rate is almost an art form. It takes finesse, knowledge and patience. But it’s worth mastering this art form, especially since the reward is a lower interest rate and monthly payment. It can also reduce the amount of time it takes for you to pay off the creditor.
Dvorkin has mastered this art and provided us with these 10 top tips.
1. Preparation is key
Before you contact your lenders about your accounts, have all the relevant information recorded in one place. This includes:
- your current credit card terms, including details such as the grace period
- statement due date
- your existing balance
- your current APR
Review your credit, too. If you have strong credit, you’ll gain some leverage. You should also review your budget, so you know how much you can afford to pay your creditors each month. If you’re negotiating more than one card, focus first on the cards with the highest interest rates. And compare your rates with the rates that others are paying. This will help you determine whether you’re getting fair offers from your creditors.
2. Get credit healthy
Credit card companies will be more favorable about lowering your interest rate if you have a healthy credit history. If you have missed payments or maxed out cards they may not play ball.
“You can’t go to the negotiation table without some leverage,” says Dvorkin. “If your credit score is low because you missed payments or have some other black marks on your credit history,y most lenders won’t help you out.”
Your credit card company will look for:
- The amount of time you’ve owned the card
- What your credit limit is
- The amount you owe on the card compared to the credit limit
- The amounts you owe on all your cards compared to their credit limits
- If you’ve made any late payments in the past
If you don’t meet their requirements, take at least six months to make your payments on time and lower your balance. Once your creditors see that you’ve made a serious effort and changed your bad habits, negotiating gets easier.
3. Find competing offers
Credit card companies and banks want to make money. And they won’t make it if they don’t have customers. And customers like the best deals. “Shop around and find the most competitive rates and products available,” says Dvorkin. “Once you find these cards, make certain you know all the details about them, such as the terms, the card’s name and the company. As the negotiation progresses, you can use this information as leverage.”
If the creditor won’t negotiate or offer you a fair deal, at least you have other options. Don’t leave yourself at the mercy of the credit card company. Empower yourself by doing your due diligence. You don’t owe your creditors any loyalty!
4. Stress a short-term solution
Let the creditor know if you are having temporary problems keeping up with your debt payments. Also reassure them that you are improving your financial situation. For example:
- you are living on a budget
- you stopped using credit cards
- you’ve sold items to help with your payments and savings
- you’ve gotten a second job
“Explain that you want to repay your debt, but you must lower the amount you’re paying each month,” says Dvorkin. “Let the creditor know exactly how much you can afford to pay. Also, make certain you get the name and title of the person you’re speaking with.”
5. Speak with a supervisor
If you speak with a representative that’s not cooperative, simply ask for a manager. Customer service representatives may not have the power to modify an account. But their direct supervisor probably will, especially if you have a sensible reason for lowering your interest rate. Dvorkin says, “If you’re denied on your first try, hang up and try again at a later date. Some reps are more responsive than others but it’s essential to ask for a supervisor.”
6. Be polite and patient
Dvorkin has spoken with many clients regarding debt and other financial situations. And one thing he’s noticed is that many people are stressed and impatient. Some people are even vindictive. Don’t be that person. If you want assistance, be polite and courteous. A cool and collected manner isn’t guaranteed to help you reach your goal. But being nasty or abrupt will definitely damage your chances.
7. Don’t be afraid to walk away
Once you do all your homework and have a few other competing cards that offer great rates and perhaps rewards, call your creditors. If you’re a good customer of several years who always pays on time and they still won’t negotiate, walk away.
“If your creditor won’t cooperate, play hard ball,” recommends Dvorkin. “Simply tell them that you have other options and you’ll have no problem making monthly payments to them.”
Negotiating a lower interest rate with a credit card company isn’t hard but it does take diplomacy and some work on your behalf. Just follow Dvorkin’s tips and you can start paying less on your credit cards this month.
What to Do If Negotiating Lower Credit Card Interest Rates Doesn’t Work
If your creditors are not willing to work with you to reduce credit card APR, then you need to seek alternate means of debt relief. There are other ways to reduce or eliminate interest charges if your creditors won’t play ball. Depending on your credit, debt and overall financial situation, you can:
- Transfer your credit card balances
- Consolidate with a personal loan
- Enroll in a debt management program
Ready to explore your best options for debt relief? Let Debt.com help you connect with a certified consumer credit counselor for a free debt and budget evaluation.Get Help Now
More Questions about Negotiating Lower Interest Rates on Credit Cards
How do you avoid paying interest on a credit card?
You can avoid interest charges by paying the full balance each billing cycle. Just be aware that to avoid interest charges, you must start and end the billing cycle with a zero balance. So, pay off your balances, then pay off new transactions every month. That way, you can use credit interest-free.
Another solution is to use a balance transfer. Transfer your existing balances to a card that offers 0% introductory APR on balance transfers. This will give you time to pay off the balance interest-free. Most balance transfer credit cards offer 0% APR for anywhere from 6 to 24 months, depending on your credit score.
Can you negotiate your credit card APR?
Absolutely! Most credit cards have variable interest rates, which can rise and fall for different reasons. You can use this to your advantage. Just be aware that results can vary and some factors are completely out of your control. For example, this year the Federal Reserve has raised benchmark interest rates. As a result, issuers have increased credit card interest rates as well. This may make it harder to negotiate lower APR.
Can you negotiate with credit card companies?
Yes. There are two basic types of credit card negotiation:
- Interest rate negotiation like what we describe above is best used when you are current with your payments. In this case, you simply want a better deal as you pay off your debt.
- There is also debt negotiation, where you negotiate to pay off your balance in a way other than the standard minimum payment schedule. You can either set up a repayment plan or negotiate debt settlement, so you get out of debt for less than you owe. Debt negotiation is generally used when you’re falling behind.