Are you paying too much interest on your credit cards? If you haven’t checked your credit card APR lately, you probably are.
“A lot of Americans just pay their bills without ever looking closely at them,” says Linda Sherry, Director of National Priorities at Consumer Action, a consumer education and advocacy group. “Interest rates have gone up a lot and are very high on a lot of credit cards. For someone carrying a balance, this can matter quite a bit.”
If you too are guilty of ignoring your credit card APR, take a look at your credit card bills and consider whether you can get a better rate. If you have a good credit history, it may be possible for you to lower your APR — sometimes substantially. Here are some tips for helping you choose which strategy might work best for you.
Option No. 1: Get a lower rate on your existing credit cards.
Many card issuers raised rates in the months leading up to the implementation of the Credit CARD Act of 2009 more than a year ago. If you noticed that your card’s rate was raised around the same time and the rate hasn’t budged since, call your card issuer and ask to have it lowered.
“Under the credit card regulations, card issuers are obligated to do an account review ever so often to see if the interest rate is still reasonable given their payment history,” says Sherry. “But not that many people take this opportunity to ask for a lower rate.”
Caveat: You must have an excellent payment history to qualify. This means paying your bills on time and, ideally, paying substantially more than the minimum amount due on your credit card every month. It also helps to have low credit card balances, not just on this card, but on other credit card accounts as well.
Option No. 2: Apply for a new credit card with a lower interest rate.
With competition heating up among card issuers, interest rates have been slowly edging downwards. For those with excellent credit, there are several cards available that offer interest rates as low as 9.99 percent. Unfortunately, most cards come with a range of APRs, depending on an applicant’s creditworthiness, so it’s difficult to know ahead of time which APR you will be offered, unless you have stellar credit.
Cards we like: A low interest rewards credit card may sounds like an oxymoron, but at a 13.24 percent APR, the Chase Sapphire Preferred card is exactly that. Furthermore, it’s one of the few credit cards that doesn’t advertise a range of APRs, so what you see is what you get. The card comes with extra perks as well, like 25,000 bonus points if you spend $3,000 in the first 3 months — enough for a $250 rebate off a round trip flight or other reward.
For those who don’t mind going through a few extra hoops, the Pentagon Federal Promise Visa card comes with a 9.99 percent variable APR, and it features a 7.49 percent introductory purchase APR for the first 36 months. You have to be a member of the Pentagon Federal Credit Union to apply, but it’s not that hard. If you don’t have an affiliation with the military (or a family member who does), consider becoming a member of the National Military Family Association, which will qualify you for PenFed membership as well.
Caveat: There are cards with lower interest rates, such as the Simmons First Visa cards at 7.25 percent, but even people with excellent credit can expect to start out with a credit limit as low as $500 to $1,000 on these cards.
Option No. 3: Apply for a 0 percent APR balance transfer card.
Good balance transfer offers have been making a comeback. While most offers still come with a balance transfer fee, the promotional period has been getting longer, and some cards now run as long as 21 to 24 months.
Cards we like: The Citi Diamond Preferred card offers a 0 percent APR balance transfer for 21 months with a 3 percent balance transfer fee. After that, the interest rate ranges from 11.99 percent to 20.99 percent, depending on an applicants’ creditworthiness. The Discover More card currently comes with a similar long-term balance transfer offer extending for an 18-month period; the same terms apply as for the Citi card.
Caveat: Don’t bother applying unless you have excellent credit. And if you can’t pay off the balance before the end of the promotional period, this may not be your best option. Check to see how the rate after the promotional period expires compares to your existing credit card APR, and do the math to make sure the transfer is still worthwhile.