Planning to pay for a big purchase (like dental work) or lots of little ones (say, to redecorate your home) using a credit card? Record-high interest rates can add hundreds, even thousands, to your total! Luckily, these tips can help you get around it. Learn how to dodge high credit card interest below.
Buy now, pay later
There’s a new way to pay for electronics, furniture, and other goods without spending a penny in interest: short-term financing called “buy now, pay later.” You pay a small amount when purchasing an item, then pay the rest of the balance over time (usually four to six weeks) typically without interest or fees. All you need to do is set up an account with a buy-now, pay-later financing company, such as Affirm, Afterpay, or Klarna. After that, you can shop dozens of major retailers (like Expedia, Overstock, and Walmart) that offer this option. You’ll immediately receive the items, then make your regular payments while enjoying your purchase! To save more: Shop through the apps for buy-now, pay-later financing companies, and you’ll find exclusive deals that save you up to 60 percent on your purchase!
Bonus tip: Found a ‘lease to own’ option that allows you to make payments over a longer period of time — say, a year? Skip it! They typically come with hefty fees that can more than double the amount you’ll pay for your purchase.
Head to the bank
If you’re planning a large purchase (for example, dental implants), consider taking out a personal loan to cover it rather than putting it on a credit card. The average interest rate for credit cards is set to climb over 18 percent this year, while the average personal loan interest rate is about 12 percent. This could save you $1,000 on interest payments on a balance of $5,000 over a five-year term.
For even more savings: Apply for a loan at a credit union since they typically offer lower interest and fees than a traditional bank. Bonus: While applying for a personal loan requires a “hard” inquiry that temporarily lowers your credit score, making regular payments of credit responsibly on a personal loan actually increases your credit score by showing creditors that you can handle different types, qualifying you for even lower interest rates in the future!
Tap into your retirement
Have a 401(k) retirement account? Take a loan against it! You can borrow up to 50 percent of your savings up to $50,000 and pay just 1 percent to 2 percent above the current prime interest rate on a five-year loan (translating to about 6 percent to 7 percent). This means you’ll be paying thousands of dollars less compared to putting the same purchase on a credit card. How it works: Unlike other loans, no application or credit check is required. You just borrow the amount you need, set a repayment schedule, and repayment is deducted from each paycheck. Even better? Both the principal and interest go right back into your retirement plan account rather than to a lender. Since all 401(k) plans are different, check your plan’s rules and restrictions.
Make this easy call
While it’s true that credit card companies are raising their interest rates to historic highs, there’s one secret you should know: Many will lower interest rates when you simply ask them to, says a LendingTree survey that found that a whopping 70 percent of cardholders who asked their issuer for an interest-rate reduction in the past year received one, resulting in an average drop of 6.9 percentage points! To help sway your credit card company to slash interest, let them know about lower rate offers from competing card companies that you’ve found in your mail or online, remind them of your long history of on-time payments or let them know if your credit score increased.
Already have credit card debt? If you plan to pay it off in less than 21 months, look for a 0 percent balance transfer offer from credit cards at Bankrate. You could save over $1,000 in interest payments and pay down your balance faster! For example, for a $6,000 balance on a card with 18 percent interest, you’ll save a whopping $1,035 when transferring it to a card that offers 0 percent interest for 21 months with a 3 percent transaction fee.
This article originally appeared in our print magazine, Woman’s World.