In your journey towards personal finance improvements, having the lowest interest rate on your credit card is ideal.
In a way, it shouldn’t matter because ideally, you’re paying off your entire monthly bill that same month, but things do happen.
When your interest rate is too high you could do one of two things, call and negotiate a lower rate or transfer your balance to a new card (if you have good credit).
I remember when the painful moment happened to me, I maxed out my credit card. It was 2010, and I was working after college to make ends meet, trying to do lots of different things.
I went to get some pizza for dinner, and when I went to pay, it was declined. I was horrified, I didn’t know I had maxed it out. Now I was much younger, and my credit limit was about $2,000 but it hit a pain point in me. What did I just do?
I went home, no pizza, and really thought about how careless I was with my finances. I made little money, and my credit card debt was adding up. I needed to get serious with things.
In my story, I just made a plan to pay off the debt ASAP over the coming months. I wish I knew about the option to roll over my balance to another card with 0% interest for a year. I could have saved a good bit of money I was making towards interest.
That’s why I was passionate to make this post as helpful as possible for you, so you can do what I didn’t think to do. Let’s get started right away.
First, call your credit card company and negotiate lowering your interest
Credit card companies get called all the time about this nowadays, so you don’t have to beat around the bush about it. Have an honest conversation with the rep to see what could be done.
It’s very typical for credit card companies to have 17% or 20% interest rates, that’s how they profit. You could ask them to temporary lower the interest rates for 3-4 months while you take care of your dues and get back on track.
A bonus tip is to ask them to refund your most recent interest charge. I’ve done this from time to time, and it really only works if you make most of your monthly payments in full. They’ll see you as a good standing customer and give back interest fees for some months where it takes you 2 months to pay off your bill.
Please do your best to always keep your credit card purchases to things that you can afford to pay in a month (2 months max). The dangerous side of credit cards is when you see it as a freedom option to buy things you can’t afford for instant and temporary gratification.
If that didn’t work, transfer your balance to a new 0% interest credit card
This is a second option because ideally you don’t want to be having too many credit cards. There’s a good & bad side to this, which I will explain in a bit.
If you can’t get your current credit card company to lower your interest rate for a few months, then your next best option is to find a company that has a credit card with 0% interest rate for a certain time period (usually a year).
You essentially take all your debt from the previous card that had the high monthly interest, and move it to the new card with zero monthly interest.
The hope here is that you make an immediate plan of action to knock out all that debt ASAP before the promotional period ends. Otherwise, you’re back on the same boat as before, stuck with high-interest rates.
Note that this usually only works if you have pretty good credit. It never hurts to apply for a credit card, just don’t do it a lot as the company will do a credit history check on you before approving or denying you.
If you don’t have good credit, do what I did and just build a fire inside you to pay off your entire credit card debt ASAP regardless of your monthly interest hits. It was my fault that I got into the debt, so I will work harder to get that debt stress off my shoulders.
Going back to the good and bad of having multiple cards. I mentioned earlier that there are pros and cons to this.
You never need a half dozen credit cards, ever. I know family members that would have so many, that I had no understanding what each one did. Was it for airline miles, was one better for cash back? Who knows.
Ideally you want to have maybe 3-4 credit cards absolute maximum. And the reason for that is that, as you buy things on those cards and pay them off in full regularly, your credit limit will increase. It will go from $1,000 to $5,000 and then $10,000 and beyond.
As this happens for each of your credit cards, your total borrowing amount increases. This helps reduce your “credit card debt” percentage, and improves your credit score.
Let’s paint a picture. Say you have 3 cards, that all have $5,000 credit limit. For this example, you almost always have $1,500 in monthly expenses and you spread them $500 a piece to each 3 credit card.
If this was the case, each card has 10% credit utilization. You’re using 10% of the allowed $5,000 credit limit.
Say, after 1-2 years, you get the limit increased to $10,000 for each card, and you still spend only $500 each for each of the 3 cards. All things being the same, your credit score dropped to 5%.
Your credit limit increased, and your spending stayed the same. On your credit score report, you’re allowed to spend even more, but it’s showing that you’re using less of your total credit card limit.
This is why I said that having a few credit cards is good, but having more than 4-5 is just useless in my opinion.
Regardless of the option, you gotta pay off your credit card debt
The 2 options above are shared to help you find a way to create some breathing room, to make a plan to pay off your credit card debt.
None of the options should ever be used to just extend the inevitible return to high interest rates, you’d ruin your opportunity to pay off your debt at a low or no interest situation.
Regardless of which option you choose, you should make a plan to pay off your debt within 4-5 months.
If you have $5,000 in debt this is totally doable for most. If you’re in much higher debt, don’t get discouraged, just make a longer plan and fight this debt with all your might.
You got yourself into it, and you’re strong enough to get out of it. Take the total amount of your debt, divide it by the months you’ll take to pay it off, and find a way to pay that number every month.
If you somehow have a bit more money, use all of it to make another payment that month towards your card. No one said you were only allowed to make 1 monthly payment towards your credit card.
There are 2 quick scenarios to lower your credit card debt interest rate. One option is to even have it 0 for some time, but you need to take action regardless to make sure you use the opportunity to pay down the debt.
If you’re along your way in paying off your credit card debt, you can see if your current card is giving you all the benefits you could get from it. Once your credit card situation is looking better, take a look at my post on top 5 cash back credit cards to see if one of them might be better than what you currently have.
Please comment below if you have a question or want to anonymously talk about your unique situation. I’d be happy to talk more.