Is it possible to lower your credit card interest rate by consolidating your debts? Yes, it is! In fact, that is one of the goals of debt consolidation. If you are trying to choose a strategy to consolidate debts, make sure that it can lower the average interest rate of your debts. The whole point of consolidating debts is not just to simplify your repayment plan. It is also meant to help you save money. One of the ways to do that is to make sure you will get a lower interest rate when you consolidate your credit card debts.
Since credit cards have the highest interest rates among the other types of debt, it will not be too hard to achieve this goal. According to reports, the average credit card interest rate is currently at its highest of 17%.
Even a small decrease in the interest rate will make a lot of difference. However, that should not suffice if you want a significant improvement in your personal finances. If you will work to lower the interest rate on your debt, you might want to get the lowest possible rate that you can get.
3 ways to lower your credit card interest rate by consolidating
It is a good thing that getting a lower credit card interest rate can be done in several ways. You can choose the best option that can complement your specific financial situation. Here are the three options that you can use to consolidate your credit card debts for it to have a lower interest rate.
Put the debt in a 0% balance transfer card
A balance transfer card is offered with a 0% interest rate for a specific period of time. This is a new credit card that you can apply for. When you get approval, you can transfer multiple credit card debts into this account. You may or may not be required to pay a balance transfer fee. This fee is only minimal and is usually a small percentage of the amount you transferred. After the transfer is done, you can pay your debt as usual but without fear of having any interest rate or finance charge added to it. At least, while the 0% interest promo period is still in effect. This will allow you to maximize the payments on the principal balance.
If you will use this option, make sure you have a repayment plan that will allow you to pay off your debts within the promo period. The ideal target is to pay off all the balance you transferred before the 0% interest rate expires.
Get a lower rate through a debt consolidation loan
Using a debt consolidation loan can also help lower the credit card interest rate for you. An unsecured loan like a personal loan has a lower interest rate compared to credit cards. A secured loan like a home equity loan has an even lower interest rate because it involves collateral that will act as the backup in case you cannot pay the loan back. If you have a good credit score, the interest rate will be even lower. The bottom line is, it will surely give you a lower rate in case you decide to consolidate your credit cards through a debt consolidation loan.
This strategy involves borrowing a loan that is the same amount as all your credit card balances combined. After the loan is approved, it will be used to pay off all the debts that you owe. Once the debts are paid off, you will be left with one big loan. Since it is just one, it should be easier to keep up with the payments. With the lower interest rate, you should be able to save money on the overall debt.
Negotiate a lower rate through a credit counselor
If you cannot qualify for a balance transfer or debt consolidation loan, it is possible that debt management is the right strategy to consolidate your credit cards. This option involves the help of a credit counselor who can help analyze your debt situation. If you have the right debts, they will offer to enroll you in a debt management program. This option involves the creation of a debt management plan. Also known as the DMP, it will be a new repayment plan that indicates the monthly payment that you can afford. This will be presented by the credit counselor to your creditors and lenders. As it is being presented, they will also try to negotiate for a lower interest rate. It will not be guaranteed that the interest will be lowered but they will strive to have the DMP approved.
Once the DMP is approved, you will send one monthly payment to the credit counselor, who in turn will distribute the payment to the various creditors and lenders in your plan.
Tips to lower the effects of a credit card interest rate
If the credit card interest rate is really bothering you, there is no need to wait for a debt relief program to do something about it. There are things that you can do to ensure that the high-interest rates of credit cards will not make your debts worse.
Pay your balance in full
This is the best way to keep using your credit cards without being in danger of debt. It means if you used the card to buy something worth $150, you have to completely pay that off when the billing statement comes. Unfortunately, not everyone can do this. According to a survey, 47% of their respondents admitted that they carry over a balance to the next billing cycle. If you carry over the balance, a finance charge will be added to the amount you owe. This is calculated based on the balance carried over and the interest rate. If the interest rate is high, then the finance charge will be high as well.
The best way to avoid the interest rate from making your debts worse is to avoid carrying over a balance. Just pay it all off when the billing comes. If you cannot afford to pay it all off, then do not spend so much.
Learn to negotiate a lower rate
You should also know that you have the right to negotiate for a lower rate. If you think that your credit card interest rate is too high, call your creditor and negotiate for a lower rate. They may relent and lower your interest rate. This is more likely to happen if you pay your dues on time. You will never know what they will say unless you ask them. Some people tell their creditors that they plan to transfer to another credit card company that offers a lower rate. There are times when the threat of you leaving for another creditor can make them agree to lower your interest rate. It is worth a try.