Bottom Line Up Front
- Reducing credit card debt can help you find peace of mind, improve your credit score and save more money on interest.
- If you have a high interest rate on your credit card, requesting a lower rate from your lender could be an option.
- A balance transfer can help consolidate debts from several cards onto one card with a single due date, simplifying your repayments while lowering your interest rate.
Looking to get on track with reducing credit card debt? We have you covered. Paying off debt is a huge accomplishment, and so are each of the steps you take to get started. By reducing your credit card debt, you’ll likely have more peace of mind and save money on interest. There are several things you can do to help ease your credit card debt and make it more manageable, including requesting a lower interest rate and transferring your balance, among others.
Rate Reduction Request
If a high interest rate on your credit card is making repayment difficult, consider 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—many succeed this way.
Maybe your financial situation has improved since you opened the card but your interest rate hasn’t dropped, in which case 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.
By lowering the interest rate on your credit card, you can expect to pay less in interest each month, meaning you may be able to put more toward your balance.
Another debt management option to consider if high interest rates are in the way is transferring your balance to a card with a lower rate at another financial institution. A balance transfer can also help with debt management by allowing you to consolidate debts from several cards onto one card with a single due date, simplifying your payments while lowering your interest rate.
Balance transfer offers typically come with a low, introductory interest rate—0% 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.
Keep in mind. 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 may 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 increases your credit utilization ratio and may negatively impact your credit score.
Additional Debt Repayment Strategies
The key to reducing debt is coming up with a debt management plan that works for you. Watch this short video to see how the snowball method or a debt consolidation loan can be an effective debt management plan. Think about which approach to debt management would work best for your financial situation.
Use our debt consolidation calculator to help you determine if consolidating your credit card debt is right for you. Credit card debt consolidation allows you to combine multiple credit card payments into one, making it easier to stay on top of your payments.
Should I Cancel My Credit Cards to Manage My Debt?
When facing credit card debt, canceling your card 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. Consider the following credit score factors that could be impacted if you cancel your credit card to help with debt management:
- Payment history: Even though the card is canceled, credit reporting agencies will still take stock of your payment history, which could significantly impact your 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 may negatively impact your amounts owed, which make up 30% of your credit score.
- Mix of credit: The more diverse your lines of credit, the better your score could be, so canceling a card might not be helpful. 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's 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 Credit Union—to review your bills and budget to help evaluate the best debt-relief options for you.
Credit counseling can provide a clear path to debt management and provide you with the steps you need to take to become debt-free. And, credit counselors can help you change your spending habits and teach you the elements of money management.
Start Your Debt Management Plan Today
It’s never too late to start managing your debt and gaining financial stability. Having a debt management plan can help you reduce credit card interest rates, consolidate debt into one payment and pay off debt faster. For more tips and resources on managing your credit score, visit our Mission: Credit Confidence Dashboard.
Take control of your finances and gain confidence in your spending habits by starting your debt management journey today.