How to Lower Your Credit Card Interest Rate

Card issuers are still willing to give their customers lower rates -- but you have to ask.

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The average American family with credit card debt has around $7,000 of it. That figure comes from the Federal Reserve's 2007 Survey of Consumer Finances, back when the economy was going fairly strong, and unemployment had yet to reach the depths it did last year. When the Federal Reserve releases the 2010 Survey of Consumer Finances, we'll probably see the average credit card debt figure increase.

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If you're trying to buck the trend and work towards paying off your debt, one of the best ways you can help your cause is to reduce your card's interest rate. On average, credit cards charge double digit interest rates that severely hamper your ability to repay that debt. You can't really blame them, that's how they were designed to work! There are, however, strategies you can use to reduce your credit card interest rates so you can pay them off faster.

Call and Ask

The easiest way is to call your credit card company and ask if they can reduce your rate. Flip over your card and call the customer service number on the other side. Navigate the phone menus until you get to a customer service representative and tell them that you saw an offer for a 0 percent balance transfer and wanted to see if "they could help you out on the interest rate." This strategy isn't unlike what you'd do with a cable company (call with competing offers to see if they'll match). This strategy worked very well when the economy was booming and credit card companies were fighting tooth and nail for more business. In our current economic climate, this may not work as well but it never hurts to give it a try.

Transfer the Balance

If you can't get it reduced by calling, you can always opt for a 0 percent balance transfer to another card. A 0 percent balance transfer means you transfer an existing balance from one credit card to another and are given a promotional period, usually 12 months, where you are charged 0 percent interest. This strategy gives you the opportunity to put more of your money towards the principal and less towards interest. Two things to check before you apply - the interest rate after the promotional period and the transfer fee. The transfer fee is usually in the neighborhood of 3 percent of the balance but you pay for it up front. If your current interest rate is close to 3 percent, skip the transfer. Also, if you have a very large debt, compare the post-promo interest rate to your current interest rate. If it's significantly higher, skip the transfer.

Peer Lending

A third option is to try your luck obtaining a loan through a social lending site like Lending Club or Prosper. You'll need to work on putting together a small proposal to entice potential investors but the interest rate reduction on your debt can be significant. The more attractive your proposal, the more people will bid to invest and the interest rate will fall. Jonathan Fowler needed $5,000 for a landscaping job and was able to secure a three-year loan at 7.1 percent (it started at 11 percent but it was bid down). The better your credit, the more attractive you'll be, and you can check your score for free with something like Credit Karma (save your money for your debts!).

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Friends and Family

Finally, you can always borrow money from your friends and family. This gets a little tricky from a tax and legal standpoint because you will need to set terms and draw up contract, or any transfered funds may be considered a gift for gift tax purposes. When you draw up terms, you need to ensure that the interest rate is above Applicable Federal Rates. The rates are broken up into short-term (less than 3 years), mid-term (3 to 9 years), and long-term (9-plus years) and your interest rate must exceed theirs or it's not considered a legitimate loan.

Hopefully one of these strategies will work in reducing your interest rate, now comes the hard part... paying off the debt!

Jim Wang writes about personal finance at