With more people facing mounting debt and credit card balances, financial experts say consumers need a rate reality check that could lead to significant savings.
Martha Prestin with O Bee Credit Union says the solution may be simpler than many people think: pick up the phone and ask for a better deal.
“To lower your interest rate? It could be as easily as calling the credit card company and asking them,” Prestin said.
The request can result in immediate changes, particularly for cardholders who have established a track record of on-time payments. Credit card companies want to retain valuable customers and may offer better terms to keep their business.
“They’re going to see that and want to keep you as a valued customer, or it’s possible you got that card and you’re 18 and have zero credit. And since then your credit score has been improved and you now qualify for a lower and better rate,” Prestin explained.
Currently, the lowest rates available hover around 12%, according to Prestin.
Shopping for new cards
If your current credit card company won’t budge on rates, it may be time to explore other options. However, Prestin warns consumers to watch for hidden fees and promotional rates that expire.
“You need to watch out for that fee. And also what the rate is after that promotional period. Because if you switch to a card that has no fee upfront, but it’s 30% or more later, then that’s not going to be a good deal if you’re still carrying a balance on that card,” she said.
While rewards programs can be appealing, Prestin cautions that interest charges on unpaid balances often exceed any rewards earned.
“Sometimes a card company will offer fabulous rewards up front. But you have to earn them and you have to jump through hoops. Maybe you have to make a dozen charges or spend over $5,000 to get those airline miles,” Prestin said.
Prestin particularly warns against retail store credit cards, which carry some of the highest interest rates in the industry – sometimes reaching 34%.
“Typically retail stores are going to have the highest rate that there is because they want you to be excited and they offer you that initial purchase discount, and then they open it up to use it other places. And then the next thing you know, you have a balance, and it’s hard to pay it off in full,” she said.
For consumers ready to tackle their credit card debt, Prestin recommends starting with a simple phone call to request a rate reduction.
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