# Six Ways to Lower Your Credit Card Interest Rates

My friend Alice had been a loyal, responsible user of her credit card since 1998. While she normally paid off her monthly bill in full, she had recently lost her job and as a result she was currently carrying a balance of about \$10,000. Her interest rate had always been rather low -- about 9% -- but she checked her statement to see what her current rate was, and to her shock, she discovered that her credit card was charging her 29%!

"It must be a mistake," she thought. So she called the phone number on her credit card. Was her rate really 29% or had she misread it? The customer-service representative who took her call explained that the credit card company had raised everyone's rates to 29%, regardless of their payment record or credit history.

When she got off the phone, Alice did the math. Here's what it looked like:

\$10,000 (interest rate 9%)
Total cost to pay off with 2.5% minimum payment: \$14,192
\$10,000 (interest rate 29%)
Total cost to pay off with 2.5% minimum payment: \$85,547

At 29% interest, there's a \$71,355 difference!

Not surprisingly, Alice was really mad. I told Alice to bring her statement to me and we would call the credit card company together to see what we could do to negotiate her rate down. I am going to share with you the six things Alice and I did, so you can do exactly the same thing for yourself and save thousands by lowering the interest rate on your credit cards. Keep in mind that Alice did not achieve instant success. However, she did ultimately make progress, and so can you -- let's get started!

1. Find Out How Much Interest You are Paying.

Go get your latest credit card statements. Your Annualized Percentage Rate (APR) should be listed at the very top or the very bottom of the statement. If you can't find it or, like Alice, you aren't sure you're reading it correctly -- call your credit card company and simply ask them what your APR is.

2. Shop For a Lower Rate.

Do an online search of your credit cards (using each card's exact name) and compare the interest rate you are currently paying to the rate each of your card companies is offering to new customers. In Alice's case, we were able to find out in less than five seconds that her card was offering new customers who qualified, an APR of just 13%, plus 30,000 frequent-flyer miles once you charged \$750. That's adding insult to injury. This is the type of information you want to know before you get on the phone to ask your credit card company for a lower rate.

3. Compare your Rate to National Averages.

You can get the latest credit card rates, along with national averages, at websites like bankrate.com, creditcard.com, cardweb.com, credit.com, and lowcards.com. The following chart from cardtrak.comshows the different rates that credit card companies currently offer different types of borrowers:

 Jan 2010 Jul 2009 Jan 2009 Super Prime (for the most creditworthy 10.59% 9.69% 8.99% Prime (for average borrowers) 15.44% 14.99% 13.77% Sub-Prime (for below-average borrowers) 26.01% 22.99% 21.67% Punitive (for borrowers with missed payments, are behind on payments, have exceeded their credit limits, or have poor credit scores) 29.99% 29.12% 29.99% Promotional (for new customers) 5.77% 3.33% 2.66% Note: Average Rates based on FICO Credit Scores. Super-Prime = 760–850; Prime = 660–759; Sub-Prime = 500–659. Source: CardTrak.com

4. Figure Out the Rate You Should be Paying Based on Your Credit Score.

Before you start calling your credit card companies, determine what category your credit score should qualify you for. If you don't already know your credit score, go to www.finishrich.com and get your free trial of Debt Wise which comes with a FREE Equifax Credit Score. If you have signed up for your free trial of Debt Wise already, you can get your credit score by logging into your account and clicking on the "credit score" link in the middle of your Debt Wise homepage.

If you have a "super prime" credit score, your credit card company shouldn't be charging you the regular "prime" rate. If it is, ask it why when you call the company. Remember, unless you make the effort to get your interest rates down by asking for a better deal, your rates are going to stay high, and it's going to be harder for you to get out of debt.

Ready? Great! Let's pick up the phone and start what I call the "Credit Card Rate Negotiation Game."

5. Call Your Credit Card Company.

When you call the credit card company, your job is to USE YOUR KNOWLEDGE. You have become smarter about your debt and know what kind of rates are being offered, so there's no reason for you to be afraid to ask for a better deal. However, assume that the first person you speak to is going to say, "Sorry, I can't help you." This is what the first tier of customer-service representatives are generally trained to say. If this happens, simply respond by saying, "Well, then let me speak to someone who can help me. Please connect me with your supervisor."

When you make this request, the customer-service rep may say, "I'm sorry -- no one is available right now." Don't accept this. Instead, tell them you want their name and ID number, so you have a record of whom you spoke with. Then insist they put a supervisor on the line immediately. Since I first began taking this approach, I have never been unable to get a supervisor on the phone.

Once you've got him or her on the line, explain your situation. Start by going over your current rate, tell them your credit score, and ask why your rate is higher than it should be. Compare your rate to what competitors are offering and ask if they would be willing to work with you to give you a better deal.

Credit card companies lower rates all the time, every day of the year, every hour of the day! I worked with one couple that had 12 credit cards, and we were able to ultimately get all but one of them to lower their rates to below 5%. In some cases it took multiple calls, but the effort paid off in the end.

Ultimately, Alice wound up taking advantage of an offer she got in the mail -- for a card that was offering new customers 0% interest for six months! She applied and transferred her balance from her old card to her new card. True, she had to pay a transfer fee of \$300, but for six months there wouldn't be any additional charges on her debt. Because she read the fine print on her transfer agreement (something you should always do), she knew that if she were just one day late on even one payment, the rate on her new card would be increased retroactively to 25%. So she made a point not to be late -- ever!

6. Ask About Forbearance or Debt Management Plans.

When all else fails, there is one last resort that can ultimately get your rates lowered. The credit card companies know that millions of their customers are in financial distress. It may be because you lost a job, had an illness in your family, or are simply earning less than you used to earn (what they call being "underemployed").

What the credit card companies will often do in such cases is review your situation, and based on what they find, they may decide to work with you to restructure your debt. This restructuring can include lowering your interest rates to zero for a period of time (usually six months to a year), lowering your minimum payments, suspending over-the-limit penalties or annual fees -- or all of the above.

There are two basic types of hardship plans for people with credit card problems: Forbearance Plans and Debt Management Plans (or DMPs). I have coached people who had credit cards with interest rates as high as 29% who were able to get their rates cut to zero as a result of signing up for one of these plans.

One downside of enrolling in these programs is that your credit card company may report this to the credit bureaus -- and if it does, this could lower your credit score. But not all the card companies do this. To find out whether yours does or not, make sure you read the fine print before you sign the contract. The truth is that even if enrolling in a forbearance program affects your credit score in the short term, it's better than falling behind on your payments or not being able to reduce your debt because you're paying so much in interest.

The reality is your credit card company is not going to lower your rate if you don't ask. So, when you do call them, make sure that you have all your information prepared and organized if you want the best results. The same goes for entering a Forbearance Plan or DMP to lower your interest rates -- you need to make sure that you do your homework so you can be in control of your finances and make the right decision for yourself. For more resources and information on credit cards and managing your money, check www.finishrich.com.