Your credit card interest rate affects how much you pay for carrying a balance on your credit card. The higher your interest rate, the more you'll pay in finance charges and the longer it will take you to pay off your full credit card balance.
When you have a variable credit card rate, there's always the risk that your interest rate will go up. That's because variable rates are indirectly tied to the Federal interest rate. Whenever the Fed raises interest rates, your credit card rate will go up. And because of the rules around variable interest rates, your credit card issuer doesn't have to warn you that your interest rate is going up. You may only notice if you pay close attention to your credit card statement.
So what are your options for dealing with a higher interest rate?
Pay your balance in full. You're only charged interest when you carry a balance past your credit card's grace period, which must be 21 days after the end of your billing cycle. If you've been carrying a balance up until now, you'll have to pay off your full balance for the grace period to apply to your next full billing cycle.
You may not be able to afford to knock out your balance all at once, but you can work toward it by making lump sum payments to your credit card as often as you can. In the meantime, avoid making any new purchases on your credit card until you've paid off the balance completely. When you start making purchases again, make sure you only charge what you can afford to pay in full.
Transfer your balance. If you have good credit, you may qualify for a zero percent interest balance transfer to another credit card. Shop around among the different credit cards to get a feel for the credit cards offering the longest promotional rates. By law, promotional interest rates must last at least six months, but there are credit cards that offer zero percent interest for 12, 18, even 21 months. You can use the the interest-free time to pay off your full balance so that when the promotional rate expires, you can begin paying your balance in full each month to avoid any future interest.
Ask for a lower interest rate. Not many people call their credit card issuers to request a lower interest rate, but it's worth a try. Credit card issuers are sometimes willing to lower the interest rate for their best customers. If you use your credit card regularly, make all your payments on time, and you have good credit, you can use these in your favor. It's a plus if you've received offers for credit cards with lower interest rates than what you're currently paying.
Improve your credit. Your credit score has a direct influence on the interest rate you qualify for. Most credit cards come with a range of interest rates with the best interest rates offered to consumers with the best credit scores. If you have a low credit score, you may not be able to do much about your interest rate right now. Qualifying for a balance transfer credit card may not be an option and your credit card issuer may be unwilling to lower your interest rate.
You can pay off your credit card aggressively while also working to raise your credit score so you can get a better interest rate in the future. Your credit card issuer won't automatically lower your interest rate as your credit score goes up, but you can call to request a lower interest rate as your score improves.
Of all the available options, paying your balance in full is the best way to combat higher credit card interest rates. No matter how high your interest rate goes, you'll never pay interest because you never carry a balance.