Is a 22.9 Percent Annual Rate Too Much for a Credit Card?

Is a 22.9 Percent Annual Rate Too Much for a Credit Card?
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Credit cards are commonplace in American households. As of July 2012, the average credit card debt was just under $16,000 per household, as reported by Statistic Brain. Deciding which credit card company to go with, as well as deciding when and how to use your credit cards, is a significant aspect of personal financial planning. When deciding on a credit card, you may consider which offers the best rewards, or which has the best customer service. But at the end of the day, the APR, or annual percentage rate, is often the most relevant factor. A high APR leads to more money out of your pocket, and an APR of 22.9 percent is fairly high.

What Exactly Is APR?

In a nutshell, APR is a percentage rate you pay for borrowing money from the credit card company. When you charge something to your card, if you don't pay off the full balance at the end of that billing cycle, then you've borrowed that money. If you borrow $100 with a 22.9 percent APR, the annual interest on that loan would be $22.90. However, with a credit card, APR is a bit more involved. Because a credit card is a revolving account, you pay the APR not only on the dollar amount of your purchases, but also on any interest you carry forward into future billing cycles. In addition to paying interest on this interest, you also incur credit card fees that may be represented by a dollar amount, or as a percentage of your balance.

Fixed or Variable APR?

A variable APR uses a reference rate, such as the prime interest rate, as a baseline amount. The prime interest rate is the optimal lending rate in the United States. The credit card company adds a margin, or an additional percentage of interest, to that reference rate to get a variable APR. When the reference rate increases or decreases, so does your variable APR. A variable APR can change monthly or quarterly, depending on your credit card company's policies, which are laid out in your credit card agreement. A fixed APR is not based on a reference rate. This does not, however, mean that a fixed APR never changes. Factors such as market conditions impact fixed APR rates, Bank of America Reports. Your credit card company has to notify you of any changes to your fixed APR. According to Bankrate, you generally receive at least 45 days' notice prior to a rate change.

What Is a Good Credit Card APR?

As of February 2014, the average APRs for fixed and variable credit cards are 13.02 percent and 15.38 percent, respectively, according to Bankrate. If your rate is close to the average rate, you are in pretty good shape. However, MSN says that if your credit card rate is closer to the 10 percent range, you have a low-rate card and you are getting a really good deal.

What Is a High APR?

Although 22.9 percent APR is a high rate, considering the national average APR rates, it is not incredibly uncommon for credit cards to carry such rates. Credit cards with high rates are generally offered to those with not-so-perfect credit. According to MSN, a popular credit card company offers a credit card at a rate of 36 percent APR. These types of cards are generally offered to those with credit scores of 650 or below. MSN also suggests that when you get above the 22.9 percent APR rate, it is a good idea to look at a secured card. A secured card requires a down payment, and these cards offer far lower interest rates.

Can I Lower My APR?

One way to potentially lower your credit card APR is to simply call your credit card company and ask for a lower rate. You can cite other offers that you have seen or other evidence that may back up your claim that you are entitled to a lower APR. The worst thing your credit card company can do is say no. Many companies also offer promotional rates, and lower rates on certain products and services. By reviewing your credit card agreement, you may be able to use some of these promotions to your advantage. For instance, if you have two credit cards and one has a promotion that offers a zero APR on flights, you may want to use the promotional card to book your flight. However, prior to using any credit card, it is wise to carefully review your credit card agreement for any additional fees, terms or conditions.