If you’ve ever missed a credit card payment or exceeded your credit limit, you may have been surprised to see a higher interest rate on your next statement. This higher rate is called a penalty APR, and it can significantly increase the cost of carrying a balance on your credit card. In this blog post, we’ll explain what penalty APR is, how it works, and what you can do to avoid it.
What is Penalty APR?
It is a higher interest rate that credit card issuers can charge when you violate the terms of your credit card agreement. The most common reasons for triggering a penalty APR are:
- Missing a payment: If you don’t make at least the minimum payment by the due date, your credit card issuer may charge a default APR.
- Exceeding your credit limit: If you spend more than your credit limit, your credit card issuer may charge a penalty APR.
- Having a payment returned: If you make a payment that is returned by your bank (e.g., due to insufficient funds), your credit card issuer may charge an APR.
How Much Higher is Penalty APR?
Penalty APRs are typically much higher than the regular APR on your credit card. The exact amount varies by issuer, but default APRs can be as high as 29.99%. This means that if you carry a balance on your credit card after triggering an APR, you’ll pay significantly more in interest charges.
How Long Does Penalty APR Last?
Once you trigger a default APR, it can last for several months or even indefinitely, depending on your credit card issuer’s policies. Some issuers may remove the penalty APR if you make on-time payments for a certain period (e.g., six months), while others may keep the default APR in place until you close your account.
How to Avoid Penalty APR?
The best way to avoid penalty APR is to use your credit card responsibly and follow the terms of your credit card agreement. Here are some tips to help you avoid triggering it.
1. Pay on time
Make sure to pay at least the minimum payment by the due date each month. Consider setting up automatic payments or reminders to help you stay on track.
2. Stay within your credit limit
Keep an eye on your credit card balance and avoid spending more than your credit limit. If you need a higher credit limit, contact your credit card issuer to request an increase.
3. Keep sufficient funds in your bank account
If you use your bank account to pay your credit card bill, make sure you have enough money in your account to cover the payment. Otherwise, your payment may be returned, triggering an APR.
4. Read your credit card agreement
Make sure you understand the terms of your credit card agreement, including what actions can trigger a penalty. If you have questions, contact your credit card issuer for clarification.
What to Do if You’re Already Paying Penalty APR?
If you’re already paying APR on your credit card, there are a few things you can do to minimize the impact:
1. Pay off your balance
Focus on paying off your credit card balance as quickly as possible to minimize the amount of interest you pay at the higher default APR.
2. Contact your credit card issuer
If you’ve been a responsible cardholder in the past, contact your credit card issuer and ask if they’ll remove the penalty APR. Some issuers may be willing to work with you, especially if you’ve had a temporary financial setback.
3. Consider a balance transfer
If you have good credit, you may be able to transfer your balance to a credit card with a lower interest rate. Look for balance transfer offers with a 0% introductory APR period to give yourself time to pay off the balance without accruing additional interest.
4. Seek help from a debt relief service
If you’re struggling to pay off your credit card debt due to high interest rates, consider seeking help from a debt relief service like MDR Financial. They can help you negotiate with your creditors to reduce your interest rates, waive fees, and create a manageable payment plan to get you out of debt faster.
FAQs
1. Can I negotiate with my credit card issuer to remove a penalty APR?
Yes, it’s possible to negotiate with your credit card issuer to remove a default APR, especially if you have a history of responsible credit use. Contact your issuer explain your situation, and ask if they can remove the default APR as a goodwill gesture.
2. How can I find out if my credit card has a penalty APR?
You can find information about penalty APRs in your credit card agreement or by contacting your credit card issuer directly. Look for terms like “penalty APR,” “default APR,” moreover “delinquency APR.”
3. Will a penalty APR affect my credit score?
A penalty APR itself won’t directly affect your credit score, but the actions that trigger a penalty APR (e.g., missing payments or exceeding your credit limit) can have a negative impact on your credit score. Late payments, in particular, can stay on your credit report for up to seven years.
If you’re struggling with high-interest credit card debt due to a penalty APR or other factors, don’t hesitate to seek help. Contact MDR Financial today to learn more about their debt settlement services and how they can help you get out of debt faster.
