Trying to lower my credit card APR; how to know what I should ask for?

Question

I have a B of A Cash Rewards credit card that I want to have the APR lowered. It currently hovers at 20.49%. I've been a B of A customer since 2007, I've had the credit card since 2012. From their website, it looks like the range of rates for this card is 14.74% - 24.74%. I currently have around $2500 with a limit of $6500.

We've already stopped using the card, the goal is to get out of debt completely.

When I call to negotiate a lower rate, should I shoot for the moon and ask for the lowest, or is there some way of knowing what I should ask for that's within the realm of reality? It may also help that my wife has a credit card with a much lower rate that I could "threaten" to have my balance transferred over. Should I ask for a rate lower than that one?

Edit: I thought my credit score was 648, turns out it's 712.

While we could transfer over to my wife's bank, we'd like to avoid that because it's Wells Fargo and we're trying to get away from them completely.

Related story: How can I get out of debt AND save money?

Answer 1

First I'm going to make some assumptions based on a single sentence:

We've already stopped using the card, the goal is to get out of debt completely.

I assume:

1. You and your wife are on the same page and are dedicated to becoming debt free. This is fantastic, and necessary.
2. You may not have been completely financially responsible in the past, but you definitely are now.
3. Both you and your wife can be trusted not to abuse additional open lines of credit, should the opportunity be presented.

Warning: this answer depends on all 3 of the above statements being true. If they are not, this answer could actually hurt more than helps. Now, let's try some math and see what comes of it:

Rate Change:

1. Right now with a balance of $2500 and a rate of 20.49%, the interest you'll pay next month is approximately $43.
2. If you are able to reduce the rate to the lowest possible rate on this card of 14.74%, the interest you'll pay next month is approximately $31. This will save you about $12 per month, and the savings will get smaller each month as your balance decreases.

Rate Change Conclusion: You'll still be paying up to $30/month in interest even with this change, so it's not the solution, but it's worth making a phone call and asking nicely for a reduction, since you have nothing to lose. However, if they tell you they need to pull your credit in order to find out how much of a rate reduction they can give you, I'd probably decline. Be prepared for them to offer you a new CC with an enticing balance transfer offer (which will also likely require them to pull your credit), but we don't know yet whether a balance transfer is worth it.

Ask yourself: How long will it take you to pay this off completely? The shorter the time period the less changes you need to make. Try to make an educated ballpark guess and make note of your answer. For example, if you can afford to throw $300/month at this debt, with interest you'll be looking at around 10 months. If you can afford $150/month then perhaps it's 22 months.

Balance Transfer: Typically the balance transfer fee is between 2-5%, though I know from first hand experience that BofA offers zero-zero (no fee/zero interest) balance transfers on new CCs for those that qualify. If you qualify for zero-zero I'd take it without too much thought and immediately move the $2500 to the new card. If it's a 3% fee with 0% for 12 months, that's only $75 over 12 months (compared to $300-500/year at your current rates). This also makes sense unless you feel you can realistically pay off the card in less than 3 months. Note though it's possible that BofA (or any bank) won't let you do a balance transfer from one BofA card to another, so most likely you'll have to explore a new bank. But once you decide to do this, it's kind of fun because with a credit score over 700 you'll be comparing not just balance transfer offers, but cashback offers too which you can take advantage of after you've completely paid off the transferred balance.

Balance Transfer Conclusion: this is probably a good solution, and I'd start with BofA first to see what they can offer. Most likely you'll have to find a new bank unless BofA allows you to move your existing balance to another card they offer. If you do a balance transfer, try as best you can to have it completely paid off by the end of the promotional period. If you can't, you're still better off, but you'll have to repeat this exercise in another 12-18 months, hopefully for the last time of your life.

Answer 2

Ideally you should stop paying interest altogether, which means stop using the card and get it paid off as fast as possible. Then your interest rate is meaningless.

The bank has zero incentive to lower your rate if you're paying interest. You could try, but I would be surprised if they made any changes. At best, they might offer a different card and a balance transfer (with a fee). Plus, if you're paying interest, a drop from 20% to 14% isn't going to make as big a difference in the long run as just paying off the card.

You could shop around for another card and transfer the balance, but you are likely going to have a 3% balance transfer fee, and it doesn't solve the problem. You're still in debt, you've just moved the balance from one place to another.

Instead, solve the problem. Get your finances in order so you stop spending more than you make (which is the reason you have credit card debt) and start saving money instead of wasting it on interest payments.

Answer 3

This has been my experience, take it for what you will. I've started a couple small businesses in the past that at one time or another would require the use of my credit card(s). I got in the habit of, with some regularity, calling my CC banks to very politely ask for things, please remove that late payment charge, please lower my interest rate, please change my billing cycle, whatever.

For starters, you will get absolutely nowhere threatening them on something like this. Just call, ask nicely, "My credit has improved over the last year I was hoping a lower interest rate would be available to me now. Is there a lower rate available to me?" If there isn't a lower rate available to you, ask for an increased limit because that will lower your utilization and improve your score further, then try again in a couple of months. For rates, it's typically not a negotiation they just tell you "we can give you x%", for limit they may ask, I always started with double the existing limit.

Secondly, I have (obviously) more than one credit card, there have been varying times where various ones would flex on various things. That's important. I needed to buy a piece of equipment, so I called all of them to ask if there was anything that could be done related to a big purchase, one offered to give me 0% for 12 months on anything charged that month. So in my opinion, no matter the outcome of this call, you should apply for another CC with no annual fee at another bank (there will probably be disagreement from others on this point) just to give yourself options in the future.

Understand that the person on the other end of the line has absolutely no skin in the game. That is a call center employee that likely deals with angry and upset people all day. Be nice, say please, you might catch a bee with that honey.

Answer 4

My credit score is somewhere around 790 and I still have ~20% APR on most of my cards. I've been fortunate enough to pay off the total balance monthly so I do not care what APR I have but my credit score doesn't seem to affect my APRs.

You need to sit down and figure out how many payments it will take you to get out of debt and stick to making those payments. Negotiating a lower APR could actually trigger you to think it's safe to acquire further debt. Money management is all about psychology.

Here is some quick math:

Paying off $2,500 @ 20.49% in 24 months is $128/month and will be a total of $3,072

Paying off $2,500 @ 14.74% in 24 months is $121/month and will be a total of $2,904

So in two years you will have saved $168.

You have already taken the crucial step of no longer using the credit card so now you need to prioritize your desire to make regular payments above the minimum. Remember, minimum payment = maximum pain for your wallet.

The bottom line is go ahead and call and ask for the lowest rate, the worst they can say is "no".

Calculate your debt re-payment schedule

Answer 5

That sounds like it could be one of your older revolving accounts, so paying it off and using it just enough so that it's not closed due to inactivity would be the thing to do. I wouldn't 'threaten' anything because you already have a better way forward, just transfer the balance as you said you could.

If you want to try and get a lower rate:

1. Transfer the balance, it just makes sense, and you have the ability.
2. Call them in two months, your score will have subsequently gone up since you lowered your balance (transferring to a card in your wife's name - but make sure her company will let you do that, some balance xfer schemes insist your name be the principal on both accounts).
3. Tell them you want to take advantage of any one time balance transfer deals they might have, but you'd like a lower rate, no fees, the convenience of issuing a check, etc. You can also ask about a higher limit.
4. Transfer the balance back, if you get a good deal. Otherwise, pay it off as soon as you can on your wife's lower interest card.

Either way, you pay less interest and raise your score (potentially, at the cost of lowering your wife's score for the interim, depending on her available credit and age of her credit history).

When dealing with banks it's good to know that you already have what you want if they say no, but life could get better if they say yes. So if you're ever in that position, take it.

Answer 6

As the other answers have alluded to, the missing part of your calculation is how much of the debt you are able to pay in each billing cycle. Of course, the less you are able to pay per month, the more you will ultimately pay in interest, but also, the more the interest rate becomes a factor. Therefore, your incentive to negotiate with the bank for a lower rate--including the idea of transferring the balance to another lender--strongly depends on the rate at which you are able to pay off the debt.

Note also that the more you are able to pay up front, the less the interest rate matters.

There's also a psychological component to this repayment: if you have a 0% interest offer on a balance transfer, you may be tempted to use it to transfer the existing debt and give yourself time to pay it off. This is advisable only if you have excellent self-discipline to do it, because the way these offers tend to work is that you have to pay off the transferred balance in some fixed amount of time. If the entire balance on the card is not paid off by the end of the promotional period--and this includes any additional charges on the card for other purchases that are due on or before the end--then the entirety of the interest on that balance transfer (plus any fees) also become due. The interest that is charged may be the regular APR on that card.

The psychology behind these balance transfer offers is that borrowers often forget when the promotional period ends, or they lose incentive to pay regular installments (after all, there's no interest due yet), or they revert to their old spending habits. This happens often enough that these offers are quite profitable. Even if 80% of borrowers don't fall for the trap, the 20% who do more than make up for all the waived interest.

So, only do this if you know you are able to pay the whole thing off, plus any additional charges, by the end of the promotional period.

Those who are disciplined and never pay interest on credit card debt are essentially benefiting from a system that is funded by those who are paying interest.

Answer 7

We had a similar problem with the APR being in the highest levels of their interest range.

First of all, whatever action you take, DO NOT mention you plan to stop using the card and want to get out of debt; once they know that you won't get any reduction as they'll want as much interest as they can from you.

In our case we were offered a 1% decrease, which really wasn't worth it. Because, like you, or goal was to get out of debt, we knew how much we could afford to pay off each month, and it would have taken about 32 months to clear the card. We went to a different bank with the lie that we were thinking of transferring all our accounts to them.

We had the choice of another card, or a secured line of credit (against home equity). We elected for the card as it offered us 12 months of no interest on balance transfers (and we made sure the interest wasn't accruing during those 12 months) and then the rate was still much lower than the existing card. We paid our minimum to the new card each month as planned, hoping to get the balance down a lot before the 12 months were up, even throwing in extra money whenever we had the chance. Once the new card was at 12 months old we had cleared enough so that the interest only came to less than $10 a month, so we ending up only have 5 more payments to clear it, which got us out of debt much faster than if we'd kept they old card. (17 months Vs the 32, almost half the time).

The only reason we choose the card over the line of credit was purely about the zero interest for a year. The LOC had a much much lower interest rate than both the old and new cards. If we owed more money at that time we would have chosen the LOC for the continuous low interest (and because it's harder to use the LOC to buy stuff if you have spending issues. Another credit card can be tempting to spend just because it's there.

We ended up being technically debt free a lot faster. Now it's just the mortgage and a zero interest car loan (it was brand new), both with reasonable payment schedules.

Answer 8

I've called Discover before and told them I wanted to cancel the card. They then asked why and I said because the APR is too high. Sometimes they were able to get it lowered and I agreed to keep the card.

If they call your bluff and proceed to the cancellation process, they have to read a disclosure and get your consent to close. At that point you can make an excuse such as "I realize I still have some recurring charges. I think I'll change those first then call back later to cancel."

I did the same thing with Citibank over an annual fee on an airline card and they agreed to credit it back to keep the account open.

Different banks have different protocols so your mileage may vary.