Interest rates on credit cards are calculated based on the Annual Percentage Rate (APR). This rate varies from one financial institution to another.
Even though this rate is represented in annual terms, it is calculated daily. This rate is divided by 365 in order to reach the daily credit card interest rate. Financial institutions calculate the interest on your credit card due by taking into account the outstanding balance shown in your statement at the end of each day.
Ways to reduce your credit card interest rate
There are no specific approaches you can take to reduce the existing interest rate on your credit card.
- Compare and contrast credit cards before applying
Taking into consideration the fact that it is not possible to reduce credit card interest rates once you have already availed one, it is pertinent to compare rates before applying.
When you decide to avail a credit card, ensure that you compare between reputed cards and contrast their features and benefits categorically to secure a card with the most affordable interest rates for which you are eligible.
Considering you have already availed a credit card, below mentioned are a few strategies which you can adopt to reduce your interest obligation and save finances –
- Pay within the grace period
Credit cards involve two primary periods – the billing cycle and grace period.
The billing cycle is the period from one credit card statement generation to another. During this period, every expense made will be considered as payable on the next statement.
A grace period, which starts from the end of a billing cycle, is the repayment window provided to cardholders. Users are required to pay their dues within this period in order to avoid paying interest rates on the outstanding balance. Note that payment due dates are provided after the grace period.
- Pay the minimum amount
In the event, you cannot repay the entire outstanding amount mentioned on your credit card statement, pay the minimum due amount. This minimum due amount is cited on such statements.
Paying only the minimum amount when you are in financial constraints can allow you to avoid incurring interest rates on the outstanding for that month. But interest will be levied thereon.
However, financial experts suggest not making it a habit only to pay the minimum balance repeatedly to avoid debt accumulation.
While these are the measures which you can adopt to avoid paying credit card interest rates, they do not mitigate your interest obligation once you have accumulated substantial dues or if you are financially incapable of paying your outstanding.
A few pointers are discussed below, which can allow you to reduce your interest rates. These involve –
- Negotiate with your card issuer
In case you have defaulted on your payments and are liable to pay interest rates on the outstanding balance, you can call your credit card customer care and negotiate the interest rate charged.
However, in most cases, card issuers might prescribe a settlement, which can potentially lower your credit score.
- Apply for EMI conversion for large expenses
Credit cards such as the Bajaj Finserv RBL Bank SuperCard provide the facility of EMI conversion for purchases or transactions exceeding Rs.3,000.
In that case, if you have made any high-end expense using your credit card, you can choose to convert it into affordable EMIs. This measure will considerably lower your obligation and ease your repayment. It is one of the ways how you can use your credit card wisely.
- Opt for a balance transfer
You can also choose to transfer your outstanding balance to a balance transfer credit card which levies a lower interest rate.
In case your credit card dues have exceeded your payment capability, you can opt for a balance transfer to pay a more affordable interest rate on the accrued amount. However, ensure to check other related charges such as balance transfer fee before applying for it.
Regardless, it is inconvenient to reduce credit card interest rates. On that account, ensure to spend in accordance with your feasibility and make timely payments to avoid any unnecessary hassle later.
How to avoid credit card interest rates?
Credit card interest rates are calculated based on Annual Percentage Rate or APR. This rate is divided by 365 and then levied on the outstanding balance on the credit card statement standing at the end of each day.
However, credit card interest rates are only applicable if the cardholder fails to pay the outstanding balance by the due date.
Methods to lower interest obligation on credit card dues
There are no definitive measures which you can adopt to reduce your existing interest rates. Hence, it is pertinent to compare the interest rates charged on different credit cards before applying for a credit card.
Conduct thorough research of all the credit cards for which you are eligible, contrast their features and benefits duly and then apply for the one where you can find better features.
In the event you have already availed a credit card, you can avoid paying interest rates by following the strategies mentioned below –
1 –Pay off your card dues before the due date
Pay your credit card bills before the end of grace period to avoid attracting any interest rate on the outstanding balance.
2- Pay the minimum balance
You can also pay the minimum amount, mentioned in your card statement, by the due date to avoid paying any interest on the outstanding balance.
Other than these, there are certain strategies which will allow you to reduce interest rates on the outstanding balance. These are –
- You can call your credit card customer care to negotiate your credit card interest rates.
- In case you have made any large expense using your credit card, you can convert it into EMIs for ease of repayment. For instance, credit cards such as Bajaj Finserv RBL Bank SuperCard provide the facility of EMI conversion for purchases exceeding Rs.3,000.
- Lastly, you can opt for a balance transfer to a different card which charges a more affordable interest rate on the outstanding to reduce your financial liabilities.
These are a few measures which can help you to reduce your interest obligation. However, it is wise to pay within time or the minimum amount to avoid facing any hassle regarding credit card interest rates later.