At the beginning of the year, many have the same goal – to pay off debt. One of the fastest ways to kill debt is to lower your interest rate on your credit card, or other consumer debt. Reducing your interest rate can slash years off your debt repayment journey, allowing you to reach freedom quicker.
This is the route I took when I was paying off debt. My four credit cards had an interest rate of over 20 percent. Payments were making little impact on my overall debt, and I needed help.
I worked with a credit-counseling agency that was able to negotiate with the banks to get the interest rates lowered to five percent or less. In fact, two of the banks reduced the rate to zero. That factor helped my efforts truly make a dent in my debt and build momentum.
Real Ways to Lower Your Interest Rate
Paying off debt often feels like rolling a boulder uphill. A high interest rate increases the resistance. However, when you lower the interest rate on your debt your path is much smoother.
If you feel like you’ll never climb out from beneath the burden of debt, here’s how you can lower your interest rate and pay off your credit cards for good.
1. Use a Balance Transfer Card
Perhaps the best way to lower your interest rate is to use a balance transfer credit card. You open a balance transfer card (here’s a list of some of the available options) and transfer the balance to the new card.
Many balance transfer credit cards offer a teaser rate of zero percent for 12-18 months. This gives you a window during which your payments are more effective and you’ll save loads of money on interest.
Just keep in mind that some balance transfer cards will ding you if the balance is not paid in full by the end of the teaser rate. They do this by retroactively charging you interest on the entire balance.
The issuing bank may charge a three to four percent fee to transfer the balance. Do your math to find the best possible option to kill your debt.
2. Take Out a Personal Loan
Taking out a loan to pay off debt? Yes, it can be done, and it can work out well when done wisely. Taking out an unsecured personal loan can help lower your interest rate, especially if you have a relatively good credit score – often slashing your interest rate by half or more.
Other benefits of taking out a personal loan are:
- You don’t have to open another credit card
- It consolidates debt so you only have one monthly payment
- You pay off your debt quicker
Read our guide here on other benefits of unsecured loans.
The best option is to compare lenders to find the best rate/fit possible.
Fiona by Even Financial lets you compare up to 17 lenders to find the best personal loan for your needs.
It takes less than a minute to fill out the application, and within a few minutes they provide possible matches.
Keep in mind that if your credit score is lower, or you’re unable to pay back the loan in the timeframe, a personal loan may not be the best way to pay off debt.
3. Don’t Forget Your Student Loans
Credit card debt isn’t the only debt you can lower your interest rate on; you can also do the same with student loans. Student loan debt is pervasive in our society, for a variety of reasons.
If you feel like you’ll never be able to pay them off, or just want some help, refinancing your loans is a good option.
Lenders like Credible are terrific choices to lower your interest rate on student loans and pay off the debt quicker. Just make sure you don’t give up any benefits you receive in your industry as the math may not shake out in the end.
You can read our review of Credible to see how you can use them to find the best student loan refinance rates.
4. Simply Ask
The absolute best way to lower the interest rate on your credit card is by calling the bank and asking. I know it sounds too good to be true, but it works. I’ve done it myself in the past and know many others who have done the same thing.
In fact, according to a recent Creditcards.com survey, calling and asking works 70 percent of the time.
Here are a few things to keep in mind if you go this route:
- Be kind, not rude. You’re asking them for a favor, and you’ll get much further with kindness.
- Ask for a supervisor if the first representative is unable to do anything.
- Do your homework and find out what other similar cards are charging. You may be able to work this to your advantage when negotiating.
- Start with your oldest card first. It shows loyalty, and if you keep the card once paid off, it will help stabilize your credit.
- Have a legitimate reason. Explain that you’re working to pay off debt, you’ve never missed a payment, etc. so it doesn’t come across as begging.
Be prepared for what the bank will say. They may only grant you a temporary rate reduction. They may deny your request. You can try the same approach with other banks as well.
Thankfully, there are other options to consider to lower your interest rate if the simple approach does not work.
5. Use a Debt Relief Program
The route I took to reduce my interest rate was using a debt relief program. They charged me $20 per month and worked with all my credit card companies – including managing payments.
I didn’t have to deal with the banks, which I loved, and I learned how to live on a budget.
The big drawback to debt relief programs is that the market is full of scammers. Common signs to look for are astronomical fees, or not helping you get back on track financially.
There are good ones out there, so do your due diligence – the National Foundation for Credit Counseling is an excellent resource as they have a database of reputable, nonprofit organizations that are able to help.
If you don’t have debt, but need to increase your credit score, a similar option is a credit builder loan.
Here’s how a credit builder loan works: a bank lends you money and they put the funds into a savings account in your name.
You make monthly payments, for up to 24 months. The amount is small and usually no more than $1,000. Once you’re done with payments you receive the cash in the savings account plus interest.
The bank reports your payments to credit bureaus, helping improve your score. While you can get a credit builder loan at your bank, you want to look online for the best rates.
Credit Strong and Self are the top choices in the space. You can even pay off your loans early if you want, with no penalties.
Read our reviews of Credit Strong and Self to learn more about each respective service.
Trying to lower your interest rate does one thing – it helps you pay off debt faster.
Reducing your interest rate is just one way to pay off your debt; there are many other ways to pay off debt that work well but lowering your interest rate is my favorite way to pay off debt.
Regardless of the method you take to pay off debt, the key is to change your habits. Paying off debt, only to continue foolish spending will put you back in the same situation. This means you spend only what you can afford and pay off your credit card in full each month.
It also means you actively begin saving money each month. Pick a financial app like Chime as they have no minimum balance round up each purchase to the nearest dollar, putting the funds in a savings account.
This will transform you from a spender into saver, which is the key to staying debt free.
Have you ever had success in getting a credit card company to lower your interest rate? What other ways have you found helpful to pay off debt quicker? Are you working to pay off debt this year?
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