My credit card APR has increased. What should I do?

As a credit card holder, you probably depend on your card terms to stay the same. However, there are times when this does not happen.

For many reasons, your credit card issuer may increase your annual percentage rate, or APR. This is actually one of the most likely to change conditions for your credit card, and when it does, it can significantly affect your credit card account. Your APR determines how much you shell out for monthly payments and how quickly you are able to pay off your credit card debt.

If your credit card’s APR has increased, you may be unsure of your options. Here’s what you can do if your issuer has increased your credit card’s APR.

Why has my credit card’s APR increased?

The prime rate has changed

Credit card APRs are tied to the prime rate, which is the rate many lenders use for financial products like credit cards, mortgages, and auto loans. When the Federal Reserve makes adjustments to the federal funds rate, the interest rates that banks charge each other for overnight loans can also affect variable rate credit products. In this case, your APR credit card will be affected.

When the federal funds rate goes up, it’s called a rate hike. In April 2022, the Fed announced that it would likely enact a number of rate hikes for the foreseeable future. So far, there has been one rate hike in March 2022, with six more this year on the horizon.

In other words, maintaining a balance could become very expensive in an environment where interest rates continue to rise. However, with a little planning and diligence, you can anticipate APR increases, which we’ll discuss below.

You paid your credit card bill late

If you don’t pay your credit card bill on time, your card issuer may charge an APR penalty, which can be up to 29.99%. If your issuer gave you a regular APR, or you have a 0% introductory APR through your card, this penalty APR will replace your previous rate.

If this happens to you, the APR penalty may not be permanent. If you start making on-time payments again, your card issuer should review your account and reinstate your usual APR.

Your APR introductory period is over

If you received an introductory APR as a new cardholder, the promotion may have expired. This promotional offer offers cardholders a reduced interest rate for a predetermined period of time. When this promotional rate ends, your regular APR takes effect and applies to any balance you carry on the card.

Your credit score has dropped

When your credit score drops, your lender might perceive you as a credit risk, which is why they will charge a higher APR for the money you borrow. Once your card issuer notices a drop in your score, they have the right to charge a new, higher APR. You have the option to opt out of the higher rate once you are notified of the upcoming change.

What can I do if my APR increases?

Now that you understand all the reasons why your APR might increase, it’s time to talk about what you can do when it happens.

Pay off your balance

The surest way to avoid the negative financial effects of a higher APR is to decrease or completely eliminate your credit card balance. The smaller your balance, the less interest you will have to pay. There are a number of ways you can reduce your balance, starting with not charging new charges to your card (while looking for aggressive ways to pay off the balance).

You can find extra cash by taking on side businesses or selling things around the house for extra cash. With a little creativity and intention, many people have successfully used these methods to pay off their credit card balance. Chances are you can do the same.

Transfer your balance to a lower APR card

If you can’t pay off your balance quickly, it might be a good idea to transfer your balance to a credit card with a lower APR. This decision can help you save hundreds or even thousands of dollars in interest.

Many credit cards offer an introductory APR for balance transfers. Depending on the card, you may qualify for a promotional balance transfer rate of 0% (or another APR below the national average).

Keep in mind that balance transfers are not free. Many cards charge a 3-5% balance transfer fee. If you want to see how much you could save with a balance transfer, even with a balance transfer fee, you should check out Bankrate’s Balance Transfer Calculator.

Consolidate your debt

If your credit card debt is very high, you might be a candidate for low interest loans that allow you to consolidate your credit card debt for larger amounts. Personal loan interest rates are generally much lower than credit card interest rates. However, lenders in this space may have stricter lending requirements. You will need to demonstrate your strength as a borrower. This means you’ll need good to excellent credit, a low debt-to-equity ratio, and a stable employment history.

If for some reason a personal loan isn’t right for you, you may be able to borrow against the equity in your home in the form of a home equity line of credit or cash refinance. Because these are secured loans, interest rates can be much lower than a personal loan or credit card.

Although loans secured by the equity in your home may be a little easier to obtain, you should be aware that if you fail to repay this type of loan, you risk losing your property. While a secured loan could be a great option for consolidating any high-interest debt you may have, it’s not a decision you should take lightly.

Consider credit counseling

If none of the options mentioned above work for you because you simply have too much debt (and an increase in your APR would make the situation worse), you might be an excellent candidate for credit counseling.

Working with a licensed credit counselor can help you create a budget and a plan of attack to help you pay off your high interest debt as quickly as possible. In some cases, they may suggest a debt management plan (DMP), bankruptcy, or other alternatives.

If you go this route, be very diligent about choosing a credit counselor to work with. Be sure to check their references and reviews and if they have a history of complaints or if they have not provided the services they promised to customers.

The bottom line

It’s never fun to see your credit card terms change, especially if the changes aren’t in your favor. Even a small adjustment to your card’s APR could mean taking more hard-earned money out of your wallet.

In general, the best practice is not to carry over a balance on your credit card. But if you happen to get one when your APR goes up, you still have to deal with it. The good news is that you have many options in this situation to get out of it.

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