Credit card debt is rising. The average U.S. household owed $8,038 in credit card debt during the first quarter of 2017, up 6% from the same quarter of 2016, according to WalletHub.
Credit card debt has grown partly because incomes haven’t kept up with the cost of living, NerdWallet says. In the past 13 years, medical costs jumped 57%, while food and beverage prices increased 36%. In comparison, median household income grew only 28%.
While credit cards may be a necessity for many, you can take steps to lower your interest rate and minimize fees. Here’s are five tips to get you started.
Closely review your credit card statements every month—not just the transactions but the interest rate, too, as the Annual Percentage Rate (APR) may have changed. Your APR, which is the interest rate you’re charged on the credit card’s unpaid balance, is typically displayed at the end of your statement.
APRs can change for several reasons. For example, when signing up for the card, you may have taken advantage of a promotional offer. Once the offer expires, your APR rises.
Note: Some software apps and services, such as Quicken, provide automatic alerts when a credit card APR changes.
2. Don't be late
If you’ve not made your credit card payment by the deadline, you’ll get hit with a late fee. Currently, a first-time late fee is capped at $27. You’ll pay $38 for a second late payment within six months, says NerdWallet.
When you’re more than 60 days late making a payment, the issuer is free to impose a penalty APR, which can be applied to current and future balances. Penalty APRs can be 29.99% or more, according to Credit Karma.
Credit card issuers are required to reassess your penalty APR after six months, says Credit.com. If your payments are on time for six consecutive months, your APR can return to its previous rate.
Even one late payment can negatively affect your FICO credit score, according to Equifax. And a significant drop in your score can cause your APR to rise.
3. Pay off your highest APR debt first
If you have more than one credit card, try to pay off the card with the highest APR first. Pay as much as you can every month until the balance is zero. Meanwhile, just pay the minimums due on your other cards.
It’s a strategy known as the “stack method.” With an alternative debt reduction plan called the “snowball method,” you pay off the credit card with the smallest balance first, followed by the card with the second-smallest balance, and so on. The snowball method gives you a greater sense of satisfaction in paying down debt. But the stack method will save you more in interest rate charges.
4. Take advantage of balance transfer offers—with caution
Some borrowers may be able to transfer a balance from one credit card with a high APR to another credit card offering new customers a 0% APR for a limited time.
While a balance transfer can save you money, it’s not without risk. A 0% APR will only last for a specific time period, such as 12 months. After that, your APR will go up. Make sure you know what the APR will be after the balance transfer promotion expires.
Keep in mind you’ll pay a balance transfer fee, too, which is often 3% to 5% of the amount transferred. Also, be sure you know if the new credit card charges an annual fee and if so, how much is it?
Another caution: Applying for a new credit card could impact your FICO credit score.
When you apply for a loan or credit card, the potential lender performs a ‘hard inquiry’ of your credit score. “Every hard credit inquiry can cause your credit score to drop by a few points,” NerdWallet explains. “Most people regain these points within about six months of a loan or credit card application, but if your credit score was poor to begin with, those points might really count. This is important to keep in mind before submitting any type of application to borrow money.”
5. Negotiate with your credit card company
Seventy-eight percent of cardholders were given a lower APR when they requested it from their card issuer, according to a March 2016 CreditCards.com survey. Even better: 89% of cardholders were successful in getting their card issuer to reverse a late fee.
“Given the success rates, everyone should be asking for those perks,” CreditCards.com blogged. “Yet the survey found that only a small number of credit card customers—about 1 in 5—has made each type of request.”
“Consumers just don’t realize how much card companies want to keep them,” said Bill McCracken, president of a market research firm that studies the credit card industry, as quoted by CreditCards.com. “Issuers know that if you’re worked up enough to call, wait on hold and talk to a customer representative, then there’s a risk that you’re going to close the card. It’s a lot more expensive to acquire a customer these days than it is to retain one, so they do what they can to keep you.”
Of course, you’ll have a stronger chance of success with your card issuer if you’re a long-term customer with a generally positive track record of on-time payments. Be aware that the card issuer may take into account your FICO credit score when considering your requests. And above all, be polite. CreditCards.com even posted a script to follow when asking for a lower credit card rate.
Ultimately, it doesn’t hurt to ask for what you want. And you might just get it.