Strategies to reduce your interest payments can help you reduce your balances faster, even if you're nowhere near
able to pay your balance in full at this point.
- Make the highest possible payment you can each month. The faster you pay off your balance,
the less you'll pay in interest charges. Increasing your monthly payments by even a few hundred dollars can help you get
out of debt much faster (see the case study below).
- Find a lender that will give you a lower APR.
- A lower APR translates into lower interest charges as a percentage of your outstanding balance.
- Switch to a lower rate card and benefit from balance transfer offers. Introductory rates must last for at least six months and terms must be clearly disclosed.
BBB Tip: “Teaser” Rates
Mark on a calendar when the APR rate is due to increase and be mindful of your balances after that date.
Case Study: How to Pay Less in Interest
Situation — You have a $5,000 credit card balance and your lender requires a minimum monthly payment of 4% of your balance. This translates to a $200 minimum payment in the first month.
Problem — If your card charges 18% interest and you make only the minimum monthly payments, it will take you 11+ years to pay off the balance. By that time, you will have paid the card company more than $2,800 in interest
even if you never make any new charges on the card
making that $5000 balance actually cost you $8000.
Solution 1 — Pay more than the minimum each month and pay off your balance faster. Even if you can’t pay a huge chunk of the bill, you can still accelerate the payoff process, which will minimize your out-of-pocket costs from interest charges.
Solution 2 — Transfer your outstanding balance to a card company that will offer you a lower interest rate, and boost your monthly payment a bit. If you switch to a card that gives you a 6% interest rate and increase your monthly payments to $500 each month, you’ll pay off your balance in 11 months and pay only $142 in interest — that’s a whole lot less than the $3,000 interest out-of-pocket described above!
As soon as you stop paying those high interest rates, you’ll free up a lot of money to cover your other expenses!