Increase in your credit card's interest rate: the reason behind it.
In the ever-changing financial landscape, managing credit card debt can be a challenging task. Here are some strategies to help you tackle high-interest debt and save on interest charges.
Firstly, if you find yourself in a tight spot due to excessive debt, consider seeking the assistance of a credit counselor. They can help you put together a budget and a plan of attack to pay down your high-interest debt.
Another strategy is to negotiate with your credit card issuer. If the rate increase was due to a late payment and you've been current for six consecutive months after the rate increase, you might be able to negotiate a lower APR again.
When the federal funds rate increases, variable-rate credit products like credit cards may also be affected. This means that the APR of your credit card could potentially rise.
If a personal loan is not an option, you can consider a home equity line of credit or a cash-out refinance. These options may have lower interest rates compared to credit cards. However, loans secured by home equity may be easier to qualify for but come with the risk of losing property if defaulted.
If the APR continues to increase, you have two main options: paying down the balance or transferring the balance to a card with a lower or 0 percent introductory APR. Keep in mind that balance transfers often come with fees of 3 percent to 5 percent.
The Annual Percentage Rate (APR) of a credit card can increase due to changes in the prime rate, late payments, expiration of introductory APR offers, or a drop in credit score. A drop in credit score can cause a lender to perceive the cardholder as a higher credit risk, resulting in a higher APR.
To qualify for a personal loan, you typically need good or excellent credit, a low debt-to-income ratio, and a steady job history. Late payments on a credit card can result in a penalty APR, which is typically higher than the regular APR.
Introductory APR offers on credit cards may have an expiration date, after which the regular APR is applied to any balance. If offered a higher interest rate, you can decline or negotiate with the issuer to possibly lower the rate.
It's worth noting that your credit card APR was likely increased due to broader market interest rate hikes by the Federal Reserve, which influence borrowing costs. The Fed raised interest rates multiple times between early 2022 and mid-2024 in response to inflationary pressures.
If the balance cannot be paid down quickly, transferring the balance to a lower APR card can help save hundreds or thousands of dollars in interest. Remember, the key to managing credit card debt is understanding the factors that impact your APR and taking proactive steps to mitigate their effects.
