Requesting a Lower Rate
There are several things you can do to alleviate your credit card debt before it becomes an even larger burden. If you have a high interest rate that is making repayment difficult, one option to consider is requesting a lower rate from your lender. Credit card interest rates aren’t necessarily set in stone, so you may get a lower rate just by asking. A creditcards.com poll found that almost two-thirds of cardholders succeed this way.
If your financial situation has improved since you opened the card but your interest rate hasn’t dropped, you may have a good case for a rate reduction. A history of regular use of the card and on-time payments also works in your favor.
Before you make the call, gather information that supports your request. Be sure the person you’re speaking to has the authority to lower your rate—you may need to ask to speak with a supervisor. Finally, if your lender agrees to a lower rate, ask for confirmation in writing and the date you should expect to receive it.
Another option to consider if high interest rates are making it difficult to overcome debt is transferring your balance to a card with a lower rate at another financial institution. If you’re struggling with debt on multiple cards with different minimum payments and due dates, a balance transfer can also allow you to consolidate all those debts onto one card, simplifying your repayments while lowering your interest rate.
Balance transfer offers typically come with a low, introductory interest rate—zero percent in some cases—that increases after a specified amount of time. You can make more progress paying back your debt if you ramp up your repayments before the introductory rate expires.
Caution: When your introductory rate expires, it may be tempting to seek out another balance transfer to avoid paying interest even longer. However, continually moving your balance to low-interest credit cards while still maintaining a high balance can damage your credit score. Additionally, if you’re transferring to consolidate debt, make sure the total combined balance does not exceed 30% of the available credit limit on your new card. Going above that limit affects your credit utilization ratio and can negatively impact your credit score.
When facing credit card debt, the idea of canceling your cards may seem like a good idea to stop the cycle. While canceling your card will allow you to make payments on the debt without incurring new charges, doing so could negatively affect your credit score in a couple of ways:
- Payment History: Even though the card is canceled, credit reporting bureaus will still take stock of your payment history, which makes up 35% of your credit score. Good payment history will continue to help your score, remaining on your report for 10 years. Any late payments will remain on your credit report for up to seven years.
- Utilization Rate: Closing a card reduces the amount of available credit you have without reducing the amount you owe. As a result, your credit utilization ratio, which you should aim to keep below 30%, will increase. This will negatively impact your amounts owed, which make up 30% of your credit score.
- Length of Credit: Be wary of closing your oldest account. Once your payment history for the closed card falls from your credit score, it won’t be used to calculate the length of your credit history, which makes up 15% of your credit score.
- Mix of Credit: The more diverse your lines of credit, the better your score. If the card you’re canceling is your only credit card, your mix of credit (which contributes to 10% of your credit score) will be affected.
There is more to canceling your card than simply cutting it up. Your cardholder agreement (usually available on the card issuer’s website) specifies how to officially close your account. In general, you should call the issuer and follow up with a written notice.
Calling on a professional to help you manage debt is a great way to get advice specific to your situation. You can work with a credit counselor—often free through a nonprofit agency or a financial institution like Navy Federal—to review your bills and budget to help evaluate the best debt-relief options for you.
Counselors can help you change your spending habits and teach you the elements of money management. Sometimes all you need is a clear picture of where your money is going to figure out that intentional spending could make your life much less stressful.
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