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Americans are addicted to the convenience of shopping with credit cards. Today 74.9% of all households have a credit card, 46.2% of all families carries a credit balance. The average household has $7,000-8,000 in credit card debt and pays 14.29% of disposable income for consumer debt payments. This debt is dragging down the household savings rate. As long as we only pay the minimum payment and continue to charge, we will never get out of debt and get serious about saving.

Here is an example showing how interest rates affect your credit card payment. $8,000 balance. $200 minimum payment.

18% APR
360 months to pay off Pay $11,615.32 in interest
9% APR
218 months to pay off Pay $3,345.20 in interest


Here are some tips for lowering your rate, paying down your debt and avoiding fees.
Cut the Costs of Your Credit Card

The average credit card APR is 14.9%. If your rate is more than this and you have good credit, then your rate is too high. Contact your issuer and request a lower rate. If they refuse, switch to a lower rate credit card. The APR you are offered is determined by your credit score. The higher your score, the lower your APR will be. Follow these tips to raise your credit score–

Another way to save money is to pay more than the monthly minimum each month. By paying only the monthly minimum (2% of balance) and continuing to use your card, you may never pay off the balance and will pay many times the amount of the purchase in interest. Don’t use your credit card for every day purchases such as gas and groceries or you will still be paying for them long after they are gone.

Using any extra cash to pay down a credit card is a wise move. Paying off a balance with a 14.9% APR is a great return for your money.

Transfer Your Balance to a Lower Rate Card
You can transfer your balance from a higher rate card to a lower rate card. However, look closely at the balance transfer fees. These are typically 3% of the amount transferred (if you transfer $5,000, the fee will be $150). The fees might outweigh the savings from the transfer. Transaction fees will be included in the finance charges. The fee for balance transfers is considered as a cash advance and you will also pay interest on the transaction fee itself.

Transfers take up to a month to complete, so continue to pay the monthly minimum on the old card until the transfer is complete, then cancel the old card. If you are late with a payment during the intro period, the rate will jump to the default rate.


Intro Rates
0% intro rates can work in your favor if you use them correctly. Pay off the balance during the grace period and close the account before the rate increases. Don’t transfer your balance and keep charging new purchases. 0% APR on balance transfers will help you get a good start towards paying down your balance. However, after the six months is over, the APR will jump to a much higher rate. Be sure to check for balance transfer fees.
Avoid Fees
Pay your credit card bill on time each month. It is too easy to be a day late on a payment, but you will pay a high penalty for one late payment or a bounced check. The late payments fee is typically $39. Your APR will also jump to the default rate of 30% or more.


Since your payment date varies each month, paying your bill online is a good way to make sure your payment is there on time. You can also schedule email payment reminders. If you pay with a check, two weeks before the due date, mail your payment with the billing coupon in the envelope that is provided.  Some issuers say that a payment is late they receive in after 2:00 p.m. on the day it is due.

If you have a good payment history but slip-up once with a late payment, contact  the company, they will probably waive the fee once. Many companies will look at your payment history with other lenders. Even if you have a clean payment history with their card, they will increase your rate if you go into default with another lender.

Be aware of your credit limit. If exceeded, you will be hit with a high over-the-limit fee and the default rate. If you are approaching your credit limit, try to pay more than the monthly minimum. Do not increase your credit limit so you can spend more and run up a higher balance. Balance transfers also apply to your credit limit.
Do not use credit cards for cash advances. The rates and fees are outrageously high. The cash advance fee is 3-4% and the APR can be as high as 28.24%.

 Pay Off Your Balance Each Month

The best way to use a credit card is to pay off your balance each month. You won’t overpay for purchases with high interest payments.

Here is an example that shows how much you will pay in interest if you only pay the monthly minimum.

 $8,000 balance. 12% APR

2% minimum payment
346 months to pay off Pay $7,696.70 in interest
5% minimum payment
109 months to pay off Pay $1,579.62 in interest

Limit the Number of Credit Cards You Have

US consumers have an average of four credit cards. 14% of the population has more than ten cards (Experian statistics). You should have between 2-5 major cards. If you have more than five, start paying them off, and close the newest accounts. Keep the oldest ones to help build your credit history. If you carry a balance on these cards, keep it below 30% of your credit limit.

How to Cancel Your Credit Cards

Inform the issuer in writing with a letter sent by certified mail. Get them to acknowledge that you are the one closing the account. Keep a copy of the letter and the “closed by customer” acknowledgement in your personal records. If you pay off your balance, also keep a copy of the check. After the account is closed, cut up the credit card so that you won’t accidentally use it again.

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