High APRs on your credit card can lead to skyrocketing payments, but you might not be stuck with the interest rate on your statement. Credit card companies are often willing to negotiate your rate, whether you have an untarnished payment history or not. Even if you're not successful the first time you request a lower rate, knowing how your APR compares with the rates on other cards can empower you to build a stronger argument the next time you call.
Your credit card's APR, or annual percentage rate, is its interest rate. Interest is the fee you pay for borrowing money. For example, if your APR is 10 percent, and you charge $300, you'll pay a fee of $30. Your credit card may charge a single APR or have different rates for balance transfers, purchases and cash advances. If you have a fixed APR, it won't change if the market does. If you have a variable APR, it will fluctuate based on an external financial index, such as the prime rate. Whether your APR is fixed or variable, your credit card company can raise it if you violate terms in the cardholder agreement, such as charging more than your limit or missing payments. Your cardholder agreement spells out in detail how your card's APR functions.
Credit Card Company Incentives
The more interest your credit card company charges, the more money it makes. However, there are times when the card company might decide to lower your rates to keep your business. This is especially true if you're a good customer who pays on time and doesn't go over your limit. If you close your account, the card company won't be making anything off of your purchases, and it will have the added expense of finding another customer to replace you. For this reason, your card company might be willing to compromise by offering a lower rate to keep you as a customer. On the other hand, if you've fallen behind on your payments, your credit card company might consider selling your account to a collection agency or taking you to court to recoup the funds. However, these options are expensive. If you can pay your balance down with a lower APR, the company might lower your rate, saving you both some money.
Reduced Rate Requests
If you want a lower APR, you have to ask. But before you make the call, do your homework. Find your current APR by reviewing your statement. Next, get a list of current rates for your credit card company's competitors. Finally, get a copy of your credit score, and do some research to find out what others with similar credit scores are paying. To do this, MyFICO.com suggests posting in finance forums. Armed with this information, call your credit card company to request the lower rate. Explain that you've found better deals with competitors, using your research to support your claims. If you're in financial distress, briefly explain the situation and how much you can pay. If the card company says no, don't argue, but do call back. If you're persistent and serious, the card company might eventually relent.
Other Payment Options
If your credit card company won't lower your rate, but you're struggling to make payments because of a high APR, ask if the company has any other programs for individuals undergoing temporary financial strain. You might be able to negotiate a settlement, which is an agreement in which you pay a large sum toward the total amount of your debt and the credit card company forgives the rest. Some credit card companies have temporary forbearance programs that will allow you to miss a few payments while you get your finances in order. Before opting into a payment program or agreeing to a settlement, learn about the potential consequences for your credit report and score. In many cases your score will be lowered if these programs go on your record.
Miranda Morley is an educator, business consultant and owner of a copywriting/social-media management company. Her work has been featured in the "Boston Literary Magazine," "Subversify Magazine" and "American Builder's Quarterly." Morley has a B.A. in English, political science and international relations. She is completing her M.A. in rhetoric and composition from Purdue University Calumet.