Credit Cards help to make easy and convenient purchases effectively. However, tapping and making your payments might increase your credit card bills making it difficult to repay them on time. The debt can be so high that even making the minimum due amount might feel heavy on your pockets. As a result of this, you will have to pay a high-interest rate on it. This can disrupt your monthly budget.
Luckily, there are several ways to lower the interest rate on your Credit Card and prevent such scenarios from unfolding.
How to Lower Your Credit Card Interest Rate?
Here are ten tips to help lower your Credit Card interest rate and ensure your finances stay on track.
1. Pay the Full Outstanding Amount by the Due Date
Rolling over your Credit Card’s outstanding balance to the next billing cycle incurs a 3%-5% or even higher monthly interest rate. It depends on the terms of the Credit Card agreement.
Avoid falling into this debt trap by clearing your outstanding monthly amount by the due date. It can help in avoiding interest rates on your Credit Card altogether. However, it’s essential to always stay up-to-date with the terms of Credit Card agreements and take steps to maintain good financial health.
2. Avoid Making New Purchases in Case of a Roll Over
Rolling over a portion of your outstanding amount means you cease to get any interest-free period on your new purchases made through the card. Furthermore, you have to pay monthly interest for the rolled-over balance. Typically, there is a 20-day interest period which can go above 50 days depending on the card issuer.
To minimise interest costs, avoid making new purchases through your Credit Card until you clear the outstanding balance.
3. Consider Going for a Balance Transfer
Balance transfer means transferring the outstanding amount from one Credit Card to another. The objective is to avail a reduced Credit Card interest rate. Simply put, you can save on interest payments by opting for a balance transfer. But remember that a balance transfer can cost you a processing fee between 1% to 3%.
4. Convert High-Value Purchases to EMI
If you make a high-value purchase through your Credit Card and face difficulty paying off the entire amount in one go, consider paying through Equated Monthly Instalments (EMIs). Yes, you can convert the amount incurred for that particular purchase into EMIs and pay it off easily. However, this scheme is only available on selected products.
After conversion, the interest you pay on this amount can be lower than that on the Credit Card. However, it’s crucial to know that not all Credit Cards offer the same scheme and interest rates can vary depending on the card issuer.
5. Ensure to Repay for Cash Withdrawals
Withdrawing cash from an ATM using your Credit Card can cause you to pay more. It happens as cash withdrawals from a Credit Card incur a one-time fee along with interest. Moreover, there’s no interest-free period on such withdrawals.
If you have to withdraw cash from your Credit Card, repay the amount at the earliest to avoid paying a higher interest rate.
6. Refrain from Using Credit Cards When Travelling Abroad
While using your Credit Card for transactions abroad is easy, it can be expensive. You may have to pay conversion charges using your Credit Card when travelling abroad. Using the card at an ATM will also incur an additional fee.
Thus, opt for a Forex card when travelling abroad to prevent paying more as Credit Card interest rate. It helps you avoid paying higher interest rates and unnecessary fees on cash withdrawals.
7. Pay Off Your Cards Based on Their Interest Rates
If you have debt on more than one Credit Card, try to pay off the cards based on their interest rate. Start by paying off the card with the highest rate first, followed by the next highest rate. You must continue until you reach the lowest interest rate on the Credit Card.
Paying off in this way will save you much in interest costs.
8. Make Multiple Payments Every Month
Are you aware that Credit Card issuers consider your average daily balance when assessing interest, not the month-end balance? Suppose you make two payments in a month. It will help reduce your average balance, leading to a decrease in your interest charges.
9. Improve Your Credit Score
Improving your credit score will help you to secure lower interest rate offers by Credit Card providers when you apply for a new one.
Paying your outstanding dues on time, not opting for balance roll-over, and improving your credit utilisation ratio are a few effective ways to improve your credit score.
10. Look for Competing Offers
Credit Card issuers are always looking for new customers. Talk to them and find out what they can offer you.
Consider the lowest interest rate on a Credit Card offered to you. Switch to the new Credit Card if it matches your present card’s features regarding credit limit, annual charges, rewards or offers better perks.
A Credit Card with a high-interest rate is more of a liability than a convenience. The above tips can help you to lower your interest rate. Take it one step at a time, and soon you can improve your finances.