Understanding Credit Cards: Managing Interest

by Amy Lillard

Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.

(10/31/2012) Credit card companies charge interest on purchases you make with the card. Interest rates are based on the market's prime rate, but then companies add a percentage on top. This means that credit card interest rates can vary widely, and can change over time.

If you'd like to reduce your interest payments, make your balances more manageable, and use your credit more wisely, try negotiating with your lender for a lower interest rate.

In many cases, simply asking your credit card company for a lower rate can result in success. If you've had an account for some time, and have been diligent about paying your bills, that particularly works in your favor — credit card companies would much rather make a current good customer happy than try to get another.

But it often helps to have a strategy. Some tactics you can try:

• Use your junk mail. If you receive credit card offers in the mail advertising lower rates, you can use this competing offer as a bargaining tool. Simply asking your company if they can match or beat the existing offer can increase the likelihood of a interest rate reduction.

• Research rates. Know what average credit card rates are at the time you call. When talking with your credit card company, ask for a rate in that range. Creditors are more likely to agree to a rate that mirrors the current market than something rock bottom.

• Sing your praises. Have you been had your credit card for several years? Do you have a good history of payment? Do you have a good credit score? Remind your creditors of your status as a good borrower, and they may be more likely to reduce your rate.

• Be open to temporary. To offset any reluctance to reduce rates, suggest a temporary reduction. Emphasizing to lenders how even a temporary fix can help you make additional payments and pay down debt shows financial responsibility.

• Keep trying. Running into resistance? Try again another day. Simply talking to another contact may open up options. Plus, internal policies change frequently, and you may qualify for a rate reduction at another time.

Finally, if you're not getting anywhere, it may be time to look for a different account and good balance transfer options. Research different options to find a good fit for you.

For Additional Reading:

Negotiating with Your Creditors: http://www.consumerreports.org/cro/money/credit-loan/negotiating-with-your-creditors/overview/negotiating-with-your-creditors-ov.htm

How to Negotiate a Lower Credit Card Interest Rate:
http://credit.about.com/od/creditcardbasics/qt/lowerrate.htm