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Credit Card Interest Rates Decoded

Anyone with credit card debt can attest that the most troublesome issue is their interest rates. It\'s incredibly difficult to get a large balance under control when you can barely make a payment that covers the interest. And if you have multiple cards with high interest rates, this can make paying off that debt hard to manage.

APR and Credit Cards - Decoding Different Interest Rates

First, it\'s useful to understand the different kinds of interest rates:

  • The APR is the annual percentage rate of interest you are charged on your credit card. It\'s the same thing as your interest rate.

  • The Prime Rate is used to set the benchmark interest rate for bank loans. Most follow the average prime rate, which has hovered in the 6% to 10% range in the last decade. For example, a lender advertising a card with an APR of Prime + 5% is hawking a card carrying a 9.75% APR based on the recent prime rate.

  • A fixed rate or fixed APR refers to an interest rate that will not change until the issuer decides to change it. Look for a fixed rate card when interest rates are on the rise.

  • A variable rate varies depending on what direction the index goes. Are interest rates on their way down? Then a card with a variable interest rate usually makes the most sense. Some issuers offer a \"variable rate for life\", which means that the rate will never go above the prime rate.

What Makes Your Credit Card Interest Rates Go Up?

  • Late payments. One late payment and you can say goodbye to your low rate. Paying your bill late is technically considered a violation of the terms of your contract with your lender. Read the fine print; there\'s not much you can do about it. Be sure to promptly pay your bills and investigate a direct payment plan.

  • Carrying too large of a balance on other cards. Your creditor may look at your credit records every quarter to evaluate the amount of debt you have in comparison to your current income.

  • Your bill-paying habits. Even if you aren\'t taking advantage of an introductory rate, you could be subject to a penalty rate of up to 32% if you miss a few payments or pay late for months.

  • Defaulting on any loan. If your lender sees you pay late or default on another loan, he can raise your interest on your credit card to insure he won\'t lose his money.

  • Nothing at all. Your lender has every right to raise your interest rate. Lenders are legally required to give you just 15 day notice of a rate change, but most will give you 30 day notice.

Lower Your Interest Rates

If your current lender is charging you more than 12% interest, it\'s time to renegotiate your rate.

According to a survey conducted by the U.S. Public Interest Research Group, more than half of the study\'s participants who called their credit card company were successful in reducing their annual interest rates by an average of one-third.

Why does a simple phone call sometimes work? The market is saturated with credit card offers, and your lender would rather keep you as a paying customer, albeit at a lower interest rate, than try to acquire a new customer.

This tactic works best for those with decent credit ratings, a history with their current credit card company, a low unpaid balance compared to their credit limit and no late payments in the past year. Still, even if you have a few blemishes on your record, it\'s always worth a try.

If you\'re having troubles getting your credit card company to reduce your interest rate, it might be worth it to enlist the aid of a credit counselor, who can go to bat for you and make those difficult phone calls.

Learn more about repayment options for your credit cards and tips to reduce your credit card debt.

Benefits of Debt Consolidation

  • Lower Interest Rates
  • Lower Monthly Payments
  • Eliminate Debt in Less Time
Learn About Debt Consolidation