If you have a credit card and carry an outstanding balance on your card each month, you’ve definitely noticed that interest you have to pay on your balance every time your statement comes. It’s annoying, but it’s there and you probably not think twice about it. But that interest you’re accruing on your card? That could be extra money in your pocket. And if you’ve got a high interest rate on your credit card or an outstanding loan (like a student loan, car loan or mortgage), it could add up to hundreds or thousands of extra dollars.
If you can’t get rid of your debt quickly, reducing your interest rates is the next best thing to making sure you get out of debt as soon as possible. Here are three simple ways to reduce your interest rates:
Refinance or consolidate. If you have a mortgage, refinancing your home while rates are low is a great option for reducing your interest rates (and your monthly payments). While refinancing a home come with fees, it will likely be worth the cost in the long run. Similarly, you can take advantage of better rates on other loans by consolidating your debt under a new loan. For example, if you have an outstanding student loan at an interest rate of 7 percent and one at 5 percent, you may be able to consolidate both loans under a new loan at the lower rate (just remember that you may give up certain borrower rights by consolidating your loans).
Make on-time payments. It might sound odd, but this is actually the best strategy to show your lender or the credit card company that you’re a responsible borrower - and that you deserve a lower interest rate. And some debt, like federal student loans, will reward you with a lower interest rate if you make consistent payments and sign up for automatic debits.
Negotiate. If you’ve been making on-time payments, you may be able to negotiate a lower interest rate on your loan or your credit card. Take a moment to research your other loan or credit card options, then pick up the phone to call the company servicing your loan or card. Use these competitive offers and your good customer history to your advantage and ask if they’d be willing to lower your interest rate.