A selling point, deal breaker, or the cost of securing credit — the annual percentage rate usually gives you a standard for comparing interest and fees from different lenders. However, when you’re initially issued a credit card or dealing with debt that is piling up, the APR is going to be very much based on the individual bank with which you’re dealing. Each and every lender tends to have unique strategies in pricing APR.
However, when it comes to factors that generally affect APR, one thing creditors look at in evaluation is the credit-worthiness of the potential cardholder. As a generalization, the better your credit score, the better the interest rate will be. When you’re looking to manage the burden of your debt, lowering APRs can be achieved through promotions that creditors offer, transferring your balance to a new card that has a lower APR for a promotional period. Often with this strategy the bank will charge a fee for giving you this lower APR. Also it is important for you to check to see what happens to the APR after the promotional period is over. To avail yourself of this strategy it is important to note that you need to be current and be credit-worthy.
To combat high APRs due to delinquency, some people turn to a debt-management plan or a debt settlement program. When you go on a debt-management plan, agreeing to pay the full principal balance of your debt over an extended term, your creditor often agrees to lower your APR.
In cases where you can’t afford a debt management plan, a settlement plan may be right for you. If you have been delinquent for over 180 days, the creditor may have sold your debt to a debt-buyer. What happens to your APR in that case is subject to practices of the debt-buyer and the terms of your credit card agreement regarding what interest rate you would be charged. If your original creditor keeps your debt and does not sell it, your APR will potentially remain high and be subject to the collection practices of your credit card bank.
This is just a quick, general look at what happens to your APR when it comes to applying for credit cards or looking into debt settlement programs versus other options. In part two of this series, we will look at the effect of a debt settlement program in more detail and from different perspectives, including length of delinquency and initial APR.