How to Reduce Credit Card Interest & Keep Your Credit Rating
When you have several credit cards with high interest rates, staying on top of monthly payments can sometimes prove difficult. If you do not make payments on time you hurt your credit score. Furthermore, entering into a debt settlement arrangement will also have a damaging impact on your credit score. However, there are steps you can take to reduce the amount spent on credit card interest payments without hurting your credit score.
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Instructions
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Review your credit card statements to determine the interest rate you are paying on each card and the grace period for each card. If possible, pay off any new charges before the monthly grace period ends as doing so will prevent the card company from assessing interest on the charges. If you have any surplus funds after making your minimum payments, make an extra payment towards the card with the highest interest rate.
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Contact each of your credit card companies and request a rate reduction. Credit card companies do not have to lower your rate upon request but some may do so in order to prevent you from taking your account elsewhere. Stress your good payment history and length of account history as reasons why the company should accommodate you.
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Shop around for promotions on balance transfers. Many credit card issuers offer low rates or even zero percent interest on balance transfers. You can continue to pay what you are paying on your cards now, your entire payment goes towards principal during the zero balance promotional period which means you can pay your cards down faster.
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Pay your cards off with funds from another source. If you have cards with very high interest rates you can take out a loan against your employer's 401k plan and use the loan proceeds to payoff your cards. You pay interest to yourself when you repay your 401k loan and that interest helps your retirement account to grow.
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Tips & Warnings
If you have been carrying very high balances for a long time your credit card company may view you as a high risk customer and offer you a settlement that involves you paying only a fraction of the balance owed. Though such an offer may sound enticing, the credit card company reports the matter to the credit bureaus and your credit score suffers because "settled" accounts are not the same as "paid" accounts. Your credit score suffers during a settlement because you took on a debt that you did not fully repay.
If you quit your job or get fired while you have an outstanding 401k loan, you have to repay the loan immediately or accept the loan funds as a taxable distribution. This means you pay income tax on the loan amount and a 10 percent tax penalty if you are under the age of 59 1/2.
