How to Lower Your Credit Card Rate

Guest blogger and credit expert shares his tips.

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This guest entry comes from Scott Bilker, founder of DebtSmart.com and author of Talk Your Way Out of Credit Card Debt:

When was the last time you looked at your credit card's annual percentage rate, or APR? You may think you know what the bank is charging you for the use of its money, but you might be surprised to find that terms have changed, and you're now paying as much as 18 percent to 20 percent, or more. The U.S. average is around 12 percent, and I believe that is much more than you have to pay—especially when you've been a good customer with that bank.

So what do you do if you discover that you are paying too much for your loans? Well, quite simply, make the bank lower your rate. Sound impossible? More than half of the time, I've been able to make my banks lower their interest rates. The trick is to have the right deal-breaker.

A deal-breaker is what you will do if the bank doesn't honor your request. It's similar to the threat of leaving the car dealership if the salesperson doesn't agree to your price, or the I'll-call-my-lawyer option if you can't settle a dispute.

You might be thinking, "What kind of threat can I deliver to my credit-card bank to make them lower my rate? What deal-breaker do I have?" The first place to look is in your mailbox. You know those low-rate transfer credit card offers that go from your mailbox straight to the garbage? Banks attempting to get you to switch sent out more than 5 billion transfer offers last year. So, I know you've seen them. Take a closer look at the next one that arrives—probably today. The best part about that offer is that you need not apply for the new credit line in order to make good use of it—to use it as leverage to persuade your current bank to lower its APR on your account. Let me explain.

Take out your credit card, flip it over, and call the customer-service number on the back. After you're done going through the torture of entering your credit card number and information in the automated voice menu, choose the option that gets you to a human. Remember to be calm, yet firm. Your conversation could go something like this:

Account rep: "How can I help you today?"

You: "I've been looking closely at my credit-card statement, and I've noticed that your bank has been charging me 18 percent interest for a while now. I don't believe I should be paying that much interest."

Account rep: "What would you like me to do?"

You: "Lower my APR to something more reasonable, like 6.9 percent."

That might be all it takes to make them lower your rate, but I want to prepare you for a bigger battle.

Account rep: "I can't do that."

You: "Who can?"

Account rep: "Nobody, really. We can't just change rates like that."

You: "May I speak to your supervisor, please?"

Account rep: "Sure, please hold."

Supervisor: "Can I help you?"

You: "Your bank is charging me way too much interest, and I want it lowered to something more reasonable, like 6.9 percent. This is the deal: I'm holding a credit offer in my hand from [name the bank], and they're willing to give me 1.9 percent for six months, no annual fee [read the offer terms]. I bet your bank has better offers for new, unproven customers than they do for established, profitable ones, don't you? I see no reason to stay with [name] if you're not willing to treat me better. I have plenty of other banks to choose from."

Supervisor: "You know that if you take their offer, the rate will go up in six months."

You: "Well, I'll worry about that six months from now. And that's six months without any high-interest charges from your bank. Or six months that your bank doesn't make any money from my account."

Supervisor: "What can I do for you?"

You: "Look, I'm not asking for you to lower my rate to 1.9 percent, but I do need a reason to keep my balance with your bank. How about 6.9 percent or 7.9 percent?"

Now, at this point your chances are fifty-fifty as to whether the bank is going to lower your rate. Your bank may come back with an offer like 3.9 percent for six months or a low-annual-fee card at a lower rate. In general, you should always take the lower rate, even if there's a time limit. You can always call back in six months and do this again or select the deal-breaker offer.

Remember that you need a real credit offer to do this. Without a deal-breaker, you're just begging; and you won't win by begging. Success here may also depend on how good you've been at handling your account—paying on time. But no matter what your credit history is, you should make that call. You may be surprised to find that the bank really wants to keep you as a customer.

Here's some incentive to make that call today. Let's say you owe $5,000, and you're making payments of $100. At 18 percent, it's going to take 93 months to pay off the card, and it's going to cost $9,300. However, at a new rate of 9.9 percent, it would take only 65 months to pay off the card, at a total cost of $6,500. You save the difference between $9,300 and $6,500, which is $2,800!

That's $2,800 for making a phone call—do it now!

If you are interested in writing a guest blog entry for Alpha Consumer, send an E-mail to alphaconsumer@usnews.com.