Credit Card Interest Rate Negotiation
Work with creditors to make debt more manageable.
Negotiating with your creditors isn’t always reserved for when you’re facing financial challenges. With the right strategy, negotiating during the good times can help you get lower interest rates so you can improve your financial outlook overall. With lower interest you save money over the life of your debts, which leaves more cash flow available in your budget for other things.
It’s important to note that this isn’t something you usually do when you’re struggling and looking for debt relief. You can negotiate with your creditors for things like lower payments and penalty removal when you’re having a hard time, but that’s a little different from interest rate negotiation. If you’re struggling now, you need solutions that will help you take control. Call us or complete the form to the right to ask for help now.
Why it’s in your best interest to have the lowest interest possible
It’s easy to get complacent about interest rates. After all, what’s one or two percentage points difference in your APR really worth?
In truth, it’s actually worth quite a bit. Consider a $5,000 credit card debt that’s getting paid back on a 2% minimum payment schedule (where your minimum payment equals 2 percent of your balance).
So how long would this debt take to pay off and how much total interest would you pay before the balance is eliminated in full if you’re making only minimum payments?
|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|
And yes, you’re reading that correctly – once the interest gets above 12 percent on a $5,000 debt, the interest charges will actually be greater than the original debt if you only make the minimum payments. This is why you get into situations where you feel like you’re paying on credit card debts forever and getting nowhere fast… because that’s exactly what is happening.
What is the average credit card interest rate in the U.S. right now?
Tip: This was the average APR as of May 2014 according to CreditCards.com.
The situation you need for effective negotiation
Of course creditors don’t just hand out lower interest rates to anyone. You need to make sure you’re in the right credit situation before you call to negotiate. So how do you go about maximizing your chances for success?
First, you need to make sure you have the highest credit score possible. Signing up for a credit monitoring service can be helpful, because you can take steps to build credit before you negotiate. That way, you ensure your credit score is at the highest point possible before you call your creditor.
It also helps to have a good payment history with that creditor. If you’ve been a customer for years and you’ve never missed a payment, then it’s in the creditor’s best interest to negotiate with you so they can keep you as a customer.
It can also help if you know what kinds of interest rates you can qualify to receive now. If the card you want to negotiate on is older, look at the last credit card you applied for to see what kind of rate you got. That can serve as a target that you want to aim for during negotiation.
Fact: According to CreditCards.com, on average females received interest rates half a percentage point higher than men in 2012.
Tips for negotiating successfully
Unlike credit limit increases, most creditors won’t just offer a rate reduction without being asked even if you have good credit. You have to call and talk to someone if you want to make it happen.
The following tips can help you be more effective:
- Know where you are and where you want to be. Make sure you know your current interest rates and have an idea of exactly what rate you want to achieve through negotiation.
- Be realistic. Credit cards average about 13% APR and rarely drop below 10% even if you have absolutely perfect credit. So don’t call to negotiate for 8% because that’s not even reasonable in almost every case.
- Be flexible and willing to compromise. If your interest is set at 22% APR and you’re aiming for 16%, don’t reject an offer for 18% outright. Although that difference of 4% wasn’t exactly what you wanted, it’s much better than where you were. Particularly if this is a rewards card you’re using for a specific purpose, this could be in your best interest to take to the rate offered.
- There’s always tomorrow. If you call to negotiate and the first representative that you speak with won’t work with you, thank them for their time and try back another day or a month down the road after you’ve had time to reduce debt and boost your credit score. Persistence and sticking to your guns will eventually pay off.
Negotiating when money gets tight
As mentioned above, while interest rate negotiation usually works best when things are good, there are ways to negotiate with your creditors when money is tight, too. This can help you avoid missed payments and potential default on your debt.
What to negotiate for if you’re on the verge of financial distress:
- Lower monthly payments
- A limited-time adjusted payment schedule (lower payments for a certain number of months)
- Penalty and penalty fee removal
- Re-aging a delinquent account to remove the account as a negative item listed on your credit report.