Most people never think to try a stunningly simple way to cut down credit-card debt
- Most people don't know you can call your credit-card issuer to ask for a reduced annual percentage rate (APR).
- Eight in 10 credit-card holders who asked for a lower interest rate in the last year were successful, according to a new survey from CompareCards.com. The average reduction was six percentage points.
- Credit-card companies may also be lenient when it comes to waiving fees and increasing credit limits - you just have to ask.
Credit-card issuers have more mercy to give than most people realize.
According to a new survey from CompareCards.com, a LendingTree company, eight in 10 credit-card holders who asked their bank or credit union for a reduced annual percentage rate (APR) in the last 12 months were granted one.
Nearly half of American households are in credit-card debt, carrying an average of $6,929, according to a NerdWallet analysis. But any amount of debt can feel suffocating when the average APR - the interest rate you're charged for borrowing money - is creeping toward 18%.
APRs are usually determined by your credit score, or your trustworthiness in paying back lenders. Carrying a balance on an account with a high APR can add hundreds of dollars to your debt load. A $7,000 balance on an account with 20% APR, for instance, will yield a $115 interest payment for the first billing cycle.
Of those who asked for a lower APR and were successful, rates dropped by six percentage points, on average, CompareCards.com found. Only one in five cardholders who were surveyed asked for an APR reduction in the past year, and men were more likely to do so. Those who didn't ask said they weren't aware they could. The survey also found younger cardholders were more likely to be granted a reduced APR.
Looking for another strategy to reduce credit card debt? Consider these offers from our partners:
CompareCards.com writer Matt Schulz recommends researching competitors' APRs before calling your bank to ask for a lower rate. Here's one way to phrase it, suggests Schulz: "I've had your card for many years, but it has a 24% APR and I've just been offered a card with an 20% APR. Would you be willing to match it?"
A lower APR can make a difference of hundreds of dollars in interest payments. As Schulz puts it, a $5,000 balance with a 24% APR and $250 monthly payments will take 26 months to pay off, plus you end up paying about $1,450 in interest. With a 6% rate reduction, you can pay off the same amount in 24 months and save over $450 in interest.
It turns out banks are also lenient when it comes to fees and credit limits. CompareCards.com found 87% of people were successful in their request to waive a late fee, 79% of people were granted a higher credit limit, and 90% of people were able to get their annual fee waived or reduced just by calling to ask.
Taking these steps to pay off credit-card debt faster, improve your credit utilization rate, and avoid late payments can be the difference between a good credit score and an excellent credit score. According to another LendingTree report, people with excellent credit have an average of nine open accounts, a credit utilization rate under 6%, and no record of late or missed payments in the past four years.
- Read more:
- We asked financial planners for the best strategy to tackle credit-card debt, and there are 2 clear favorites
- The most convenient tools to help pay off credit card debt can ultimately save thousands of dollars
- The 'debt snowball' and 'debt avalanche' might sound gimmicky, but they're both highly effective strategies to get out of credit card debt
- After years of experimenting, I've figured out exactly what opening and closing credit cards does to your credit