Should I close my credit card if I have a high interest rate?

Are your credit cards charging more interest than you can afford? A high-interest credit card can make it a lot harder to pay off credit card debt. Even if you only carry a balance on your credit cards occasionally, high interest rates can cost you a lot more money than you realize.

Knowing how to lower credit card interest rates — by switching cards, raising your credit score or contacting your credit card issuer — is an important financial skill.

Let’s take a look at how much a high-interest card can cost you, when you should ditch your high-interest credit card and what you can do if you want to keep a high-interest card open.

What is a high interest rate for a credit card?

Right now, the average credit card interest rate in the United States is around 20 percent. So take a look at your credit cards and compare your annual percentage rate (APR) to the national average.

A good APR for a credit card can depend on many factors — your credit score, the type of credit card you choose and so on. If you have good credit, you’ll probably get offered lower interest rates. If you sign up for a store credit card, you’ll probably pay higher interest rates.

If the interest rates on your credit cards are significantly higher than the average — say around 30 percent APR, for example — you might want to consider lowering your rates. This means you’ll either need to contact your credit card issuer to request a lower credit card interest rate or cancel your credit card and apply for a low-interest card instead.

If you always pay off your credit card statements in full, it might not matter whether your credit card has a high interest rate. With most credit cards, people who never carry a balance past their credit card grace period aren’t charged interest on their purchases. That means you can have a credit card with a high interest rate on purchases without having to worry about how much that interest could cost you.

How expensive is it to carry a balance?

How much interest will you pay on your credit card balance? It depends on your current APR and the balance you’re carrying on your credit card. A good credit card calculator can help you figure out exactly how much your unpaid balance might cost you.

Here’s an example:

Let’s say you have a $1,000 balance on a credit card with a 29.99 percent APR. If you make a $30 minimum payment on your credit card every month, it will take 73 months (more than six years) to pay off your debt in full — and you’ll pay a whopping $1,175 in interest charges, according to Bankrate’s credit card payoff calculator.

If you decide to be a little more aggressive about paying down your credit card debt and put $100 toward your balance every month, it will take only 12 months to pay off your credit card and you’ll pay $165 in interest.

But what if your credit card only charged 20.75 percent APR — roughly the current national average — and you put $100 toward your $1,000 balance every month? You’d still clear your balance in 12 months and pay only $107 in interest. That’s why some people decide to ditch their high-interest credit cards and look for lower-interest options.

When should you ditch your high-interest card?

When is it time to say goodbye to a credit card with a high interest rate? Let’s take a look at a few scenarios where it may or may not make sense to get rid of a high-interest credit card.

You always carry a revolving balance month to month

If you are carrying a revolving balance on your credit card, you’re likely paying a lot of interest on that balance every month. When interest piles up even as you make payments each month, it can feel like you’ve dug yourself into a hole. That means it’s probably time to look for a lower-interest option, such as a balance transfer — and put that high-interest card to rest.

You always pay your balance on time but you pay a high annual fee and a high interest rate

If your high-interest credit card isn’t costing you a lot of extra money in interest because you pay your balance off in full every month, you might not want to ditch your card quite yet. Having multiple credit cards is good for your credit score, so consider keeping your high-interest account open while you look for a new card with lower interest or better credit card rewards. Once you find a credit card you really like, you can make it your everyday spending card.

However, if you always pay your balance on time but you have a high-interest card that charges a high annual fee, you may want to ditch that card. You can either cancel the card completely or downgrade your credit card to a no-annual-fee version. Paying an annual fee on a card that’s charging you high interest rates isn’t a great option, and there are plenty of no-annual-fee credit cards that might better suit your needs.

Tips for paying off high interest cards

Pause spending on the card

If you’re carrying a revolving balance and finding it hard to stay afloat with your high-interest credit card, you might want to pause spending with that card and switch to a debit card instead. Put off all unnecessary spending — especially high ticket items like new electronics or appliances you don’t need — unless you can pay cash. In the meantime, you can focus on paying the balance on that high-interest credit card without growing it consistently through everyday spending.

Ask for a lower interest rate

If you find yourself occasionally struggling to pay off your balance on time and in full, consider asking your credit card issuer for a lower interest rate. If you don’t typically fall behind on payments, your credit card issuer may be willing to work with you. It is important to be proactive in a situation such as this because you don’t want to rack up debt on a high-interest credit card due to falling behind on a few payments. Try your luck negotiating and ask for a lower interest rate.

Consider a balance transfer credit card

By transferring your balance to a credit card with a 0 percent introductory APR period, you’ll have the opportunity to pay down your credit card debt without accruing interest. To qualify for a balance transfer credit card that offers a long interest-free period, you will need to have good or excellent credit. However, there are options for individuals with fair credit, too, though the promotional period will likely be shorter.

Keep in mind that if your new balance transfer card doesn’t allow you to transfer your entire balance from the high-interest credit card, you will need to keep that account open until it’s paid off. If this is the case, do the math to determine what’s best for you – should you focus on the high-interest balance first or the amount you transferred? Consider factors like:

• The ongoing interest rates for both cards
• How long the intro period lasts for your balance transfer card
• How much you can commit to paying on the balance each month

In some cases, you may want to pay off the transferred balance as soon as you can in order to take full advantage of the 0 percent intro APR period allocated on your new balance transfer card. Or, it may make sense to focus on paying off the remaining balance on your high-interest card.

The bottom line

A credit card with a high interest rate can cost you a lot of money over time if you aren’t able to pay off your balances in full every month. If you’re currently carrying a balance on a high-interest credit card, consider transferring your balance to a balance transfer credit card and ditching your high-interest card.

Keep in mind that you don’t necessarily have to cancel your high-interest credit card account to avoid paying high interest charges. Since your credit score affects the interest rates you get offered, you might want to avoid canceling a high-interest credit card altogether. Instead, you can transfer your balance (or pay it off in full) and let the account remain open and in good standing. That way, you’ll increase your available credit and potentially boost your credit score.

If you want to keep using your high-interest credit card as your everyday spending card, contact your credit card issuer to see if you can negotiate a lower interest rate. Otherwise, clear out the balance and look for a lower-interest option.