How Can I Pay Less Interest on My Credit Cards?

Struggling with credit card debt can feel overwhelming, and it's a challenge faced by millions of Americans. More than 40% of credit card consumers currently carry a monthly balance, owing an average of more than $6,000 to card issuers.

If you're one of those credit card holders, you can take steps to make your debt more manageable. One of them is to reduce your interest rate, which allows more of your money to go toward paying off the debt.

Now is a great time to reduce the interest rates on your credit card, as interest rates, in general, are headed upward.¹ Below are five strategies that every consumer can use to lessen their debt burden.

1. Never miss a payment

Once you've been more than 30 days late on a payment, your credit card issuer can adjust your interest rate to charge you a “default" rate, which can be 10 percentage points (or more) higher than the standard rate, according to ValuePenguin.com. Make sure you never miss a payment by setting up automatic monthly payments for the minimum amount due, or more. Some issuers also raise your rate for going over your credit limit, so set up text reminders to alert you if you're getting close.

2. Talk to your current issuer

If you regularly pay your credit card bills on time, ask your credit card issuers whether they'll lower your rate. You might also be eligible for a better rate if your credit score has significantly improved since you opened the account.

Visit ftc.gov/faq/consumer-protection/get-my-free-credit-report to see how you can get a free copy of your credit report.

Only a quarter of credit card holders have asked their lender for a lower rate, but of those who asked, nearly two-thirds received a rate reduction of an average 5.5 percentage points, according to CompareCards.com.

3. Shop around for better offers

If your card issuer won't lower your rate — or if you're still unhappy with the rate you're paying — shop around to see whether you can find a better rate from another lender. Ideally, you'll find a card that has a lower overall interest rate and a low or 0% interest on balance transfers for new customers.

Before signing up, however, read the fine print carefully. Most balance transfer offers also charge a balance transfer fee of a few percentage points of the balance, and the low introductory rate only lasts for a set period of time, such as one year. If the fee is lower than the interest you're currently paying, it may still be a good deal, especially if you can pay off the balance before the interest rate resets.

4. Consider consolidating your debt

You may be able to use the proceeds from a lower-interest home equity loan or line of credit to pay off your credit cards. The rates on such loans can be less than half the rates you pay on credit cards, but they're riskier because you're using your home as collateral. That means that if you have trouble making payments in the future, the bank could foreclose on your home.

5. Make repayment a priority

The best way to pay less interest on your credit cards is to lower the balance on which you're paying interest. Once you've reduced your rate or locked in a balance-transfer offer, take the money that you're saving on interest and redirect it toward principal payments. If you have more than one credit card, you should always pay the minimums on all of them.

After that, experts recommend using either the snowball method (paying off the highest-interest debt card first before moving on to others) or the avalanche method (paying off the card with the largest balance). Both approaches have pros and cons, but the most important thing is to pick one and stick with it.

While you're paying off your credit card debt (and once you've finished), avoid spending habits that might cause your balance to grow again. Focus on building an emergency fund with enough money for six months' worth of expenses. That way, if an unexpected cost comes up, you'll be able to cover it with cash, rather than resorting to your credit card.

1. https://www.federalreserve.gov/newsevents/pressreleases/monetary20180613a.htm

Beth Braverman is a freelance writer covering personal finance, parenting, and careers. Her work has appeared in dozens of publications, including Consumer Reports, CNBC.com, and CNNMoney.com. She lives with her family in Westchester County, N.Y.

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