It's a New Year—Take Charge of Your APR!

It's a New Year—Take Charge of Your APR!

Credit cards come laced with many booby traps, from Annual Percentage Rates (APRs), to Effective Annual Rates (EARs), to hefty late payment fees. Is your APR too high?

Your credit card interest rate is determined by your credit history, so if you have a long history of paying on time, you're most likely to find a good (low) rate. All the same, reasonable APRs are generally under 15%. If your APR is higher than that, do this:

Try to Negotiate

Call your credit card company and ask for a better rate. Emphasize your long relationship with the card company (if you have one), and tell the representative that you're considering a switch if he or she can't lower your rate. If the representative pushes back, see if you can be transferred to an account manager. We've heard stories of 17% APRs dropping to 10% with just one phone call. Be aware, however, that credit card companies may be tougher negotiators because of the current economy.

Find a Better Card

Visit Bankrate.com to compare credit cards and find one that's right for you. Don't open more than one new card, however, because opening more than one card in a short period of time will damage your credit score.

Pay Your Bills on Time, Instead!

APRs don't really matter as long as you pay your bill in full, every month. There's no reason to pay more than what you owe (you don't actually get anything for your interest payments), so stay on top of your bill!

Be Wary

Although it's tempting to ditch your undesirable cards, only cancel one credit card per year, or you'll seriously mess up your credit score. Also, never cancel your very first credit card, because that hurts your score, too. To cancel more than one card, make a note in your calendar for next year and simply stop using the unwanted ones in the meantime.

Before you commit to a new credit card, here are some APR advertising tricks and lingo you MUST know:

Rounding Down

No matter how good your APR is, chances are that it’s higher than you think. Most banks round down when advertising their APR rates, so a card that advertises an APR of 19.9% could actually be as high as 19.949%. Sneaky, right?

APR vs. EAR

Many credit cards are quoted as monthly compounded APR, but that number is misleading. The “real” APR is the number in the effective annual rate (EAR), which is not always quoted in marketing materials. In plain English, that means that an APR that already sounds high—say 29.99%—carries an effective annual rate of 34.48%.

The math is complicated, for all you numbers geeks: Usually, EAR = (1+APR/n)n-1, where n stands for the number of compounding periods of the APR per EAR period.

Even worse!

Beware of 0% Introductory Offers

Credit card companies will try to rope you in by sending envelopes with a fat “0%” on the outside. Don’t judge an offer by its envelope. These “teaser rates” last for a fixed, and often very short, period of time. Then, the rates jump to something much higher.

Basically, APRs are a headache and really just boil down to lots of profit for credit card companies. How do you win? Stay out of credit card debt! If you're already in debt, kick into full gear by reducing that debt with the help of LearnVest Financial Bootcamp. In the meantime, it's worth calling your credit card company to ask if they'll lower your APR. They do this, often in exchange for allowing them to automatically deduct payments from your bank account to pay off the balance. But, if you don't ask, you likely won't get!

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