If you can’t make headway with your debt, high APR may be what’s holding you back.
When it comes to debt, the credit experts at CardRates.com want you to know that your credit card interest matter greatly. In a finance article published last week, CardRates.com writer Adam West explains how a debt management program offers debt relief. The secret is interest rate reduction or elimination.
Why do credit card interest rates matter so much?
Credit card APR matters because the rate applied to your charges is relatively high. If you get a mortgage today with good credit, that interest rate is probably around 5%; the same thing is true on an auto loan. If you take out a personal loan, the rate should be between 7-10% with a good credit score.
By contrast, if you have a good credit score and you apply for a credit card, the average APR is 17.90%. That’s with good credit; if you have bad credit you should expect the rate to be around 24.50%.
Rates that high tend to eat up your payments quickly. If you have a rate that’s around 15%, roughly one half of every minimum payment covers accrued monthly interest charges. Once your rate goes over 20%, that jumps to two thirds of every payment.
This is why we call credit card APR a Glutton for Payments:
What can you do to combat high APR?
You have a few options on how to combat high APR on existing credit card debt. The best solution to use really depends on your financial situation.
- You transfer your debt to a 0% APR balance transfer credit card. This gives you some time to pay off your debt interest-free, but it only works if you have good credit; otherwise, you won’t qualify.
- You can call your creditors to negotiate lower interest rates. In some cases, a creditor may even agree to eliminate the interest charges while you pay off a large sum of debt. However, results can vary.
- You can enroll in a debt management program through a credit counseling agency. Seeking professional help shows your creditors that you’re serious, so they may reduce or eliminate charges more readily than they would if you just called them.
Going through credit counseling gave Ronnie a way to eliminate over $50,000 in credit card debt while teaching him how to stop using credit cards.
As CardRates.com points out, statistics show Consolidated Credit is able to reduce clients’ interest rates from 20-29% on average, to 6%. Cutting total interest charges by over a third dramatically accelerates how fast you can pay off your debt. It makes repayment more efficient. This is why data shows clients get out of debt within 36-60 payments even though their total monthly payments are 30-50% lower.
If minimum payments are getting you nowhere with debt, talk to a certified credit counselor to find a better way out of debt.