If you carry a balance on your credit card, you're paying interest charges. First things first: Figure out how to avoid being charged that interest in the first place. Otherwise, the easiest way to reduce your credit card interest payments is surprisingly simple: just ask. Many cardholders overlook this straightforward approach, potentially leaving money on the table. Here's how to go about lowering your interest rate, so you have a better shot of getting on top of your credit card debt.

Evaluate your current situation

Before making any moves, it's important to understand your current financial position. Start by reviewing your credit score and payment history, as these factors significantly influence your negotiating power. Next, compare your current interest rate to what's available in the market for similar credit profiles. This research will give you a realistic idea of what you might qualify for. Finally, calculate how much you could potentially save with a lower rate. This figure will not only motivate you but also provide a concrete goal for your negotiations.

Prepare before calling

Preparation is key to any successful negotiation. Begin by gathering information on competitor offers, especially those you've recently received in the mail or online. These can serve as leverage during your conversation. Make a mental note of your positive account history, including how long you've been a customer and your record of on-time payments. Be ready to discuss your loyalty as a customer, highlighting any other accounts or services you have with the same institution.

Making the call

When you're ready to negotiate, contact your card issuer's customer service line. Ask to speak with a representative specifically about lowering your interest rate. Remember to be polite but firm in your request. Your demeanor can significantly impact the outcome of the conversation. Approach the call with confidence, knowing you've done your homework and have a strong case for a rate reduction.

What to say on the phone

During the conversation, focus on highlighting your good payment history and loyalty to the company. Mention any better offers you've received from competitors, using them as a point of comparison. Be specific about the rate you're seeking, based on your research of current market offers. Remember, the representative may not agree to your first request, so be prepared to negotiate.

If they don't agree

If the representative doesn't agree to lower your rate, don't give up. Ask to speak with a supervisor who may have more authority to adjust rates. Inquire about temporary promotional rates that could provide short-term relief. If all else fails, consider a balance transfer to a card with a lower rate, but be sure to factor in any balance transfer fees when calculating potential savings. Remember, even if you don't succeed on your first attempt, you can always try again in a few months, especially if your credit score improves or your financial situation changes.

How much you can save

There are no guarantees your credit card company will approve a decreased interest rate, but the potential savings make it worth trying. According to LendingTree, the average reduction that people receive is 6.3 percentage points. Not only that, but more than three in every four cardholders who asked for a lower interest rate on one of their credit cards got one, according to that same 2023 survey.

Depending on your circumstances, that type of decrease could save you $500 or more in interest. Let's say a cardholder has $5,000 credit card balance and pays $250 per month.

• A 6.3-percentage point reduction from 23.84% to 17.54% saves $478 and two months worth of payments. That adds up to $1,436 over 26 months (versus $958 over 24 months).

• A 6.3-percentage-point reduction from 27.00% to 20.70% saves $532 and two months worth of payments. That adds up to $1,717 over 26 months (versus $1,185 over 24 months).

Credit card balance transfers are a useful yet often misunderstood tool. When used strategically, they can offer a path to debt reduction and financial stability. However, like any financial instrument, balance transfers come with both opportunities and pitfalls.

At its core, a balance transfer is the process of moving debt from one credit card to another, typically to take advantage of a lower interest rate. Many credit card issuers offer promotional balance transfer rates, often as low as 0% APR for a limited time, as an incentive for new customers. Here's when a balance transfer does and doesn't make sense, and the steps it takes to do it.

When a balance transfer makes sense (and when it doesn't)

Balance transfers can be an excellent strategy when you have a plan to pay off the debt within the promotional period. It makes sense when interest savings outweigh the balance transfer fee, and when you're committed to not accumulating new debt on the old card.

However, balance transfers may not be advisable if you can't qualify for a card with better terms than your current one, or the transfer fee would cost more than you'd save on interest. If you don't have a realistic plan to pay off the balance before the promotional rate expires, then you might slip into to viewing the transfer as a reason to accumulate more debt.

Pros and cons of balance transfers

Benefits:

• Interest savings: The primary advantage of a balance transfer is the potential for significant interest savings, especially with 0% APR offers.

• Debt consolidation: Transferring multiple balances to a single card can simplify your finances and make it easier to track payments.

• Breathing room: A promotional period can give you time to catch up on payments without accruing additional interest.

Drawbacks:

• Transfer fees: Most balance transfers come with a fee, typically 3-5% of the transferred amount.

• Limited time offer: The low interest rate is temporary. If you don't pay off the balance in time, you could face high interest rates.

• Credit score impact: Applying for a new card and increasing your credit utilization on one card can temporarily lower your credit score.

Steps to complete a balance transfer

If a balance transfer is right for you, here's how to do it.

1. Assess your current situation: Begin by taking a hard look at your existing credit card debt. Note the balance on each card, their respective interest rates, and your current monthly payments. This information will be crucial in determining whether a balance transfer makes financial sense for you.

2. Research balance transfer offers: Explore the market for balance transfer offers. Look for cards offering low or 0% introductory APR periods. Pay attention to the length of these promotional periods, which typically range from six to 21 months.

3. Calculate potential savings: Use online balance transfer calculators or create a spreadsheet to estimate how much you could save with different offers. Don't forget to factor in balance transfer fees, which usually range from 3% to 5% of the transferred amount.

4. Check your credit score: The best balance transfer offers are usually reserved for those with good to excellent credit. Check your credit score to get an idea of which offers you might qualify for.

5. Apply for the new card: Once you've identified the best offer for your situation, apply for the new credit card. Be prepared to provide personal and financial information.

6. Initiate the transfer: If approved, contact the new card issuer to initiate the balance transfer. You'll need to provide information about your old card and the amount you wish to transfer.

7. Continue payments on the old card: Until you receive confirmation that the transfer is complete, continue making payments on your old card to avoid late fees.

8. Create a repayment plan: Develop a strategy to pay off the transferred balance before the promotional period ends. Divide the total balance by the number of months in the promotional period to determine your monthly payment goal.

Finding a long term solution

While balance transfers can provide immediate relief, they're not a cure-all for financial troubles. To truly benefit from a balance transfer, it's crucial to address the underlying issues that led to the debt in the first place. This might involve creating a budget, building an emergency fund, or seeking financial counseling.

Remember, a balance transfer is a tool, not a solution. Used wisely, it can be a stepping stone to financial stability. But like any tool, its effectiveness depends entirely on how you use it.

It’s never too late to start saving for retirement, but how early should you start? Whether your teen is lifeguarding at the local pool, scooping ice cream, or mowing lawns, summer gigs offer more than just spending money—they present a golden opportunity to kickstart a lifetime of financial security. The reason for this is compound interest, which we’ll run the numbers on below. If you’ve been waiting to invest in your retirement until you check off other financial goals (cough cough, students loans), let’s breakdown why you should consider setting aside at least some savings. And if you have a teenager who rolls their eyes at the idea of contributing part of their very first paycheck to their far-off retirement, here’s how you can explain to them why it’s so important to start saving as early as possible.

Why saving early is so important

Simply put, compound interest means the interest on an investment grows exponentially—rather than linearly—over time. What this means for a retirement account like a 401(k) or Roth IRA is that every little bit you contribute goes a long way, especially compared to a traditional savings account. The key is that with compound interest, how early you start saving usually outweighs how much you contribute. Even an investment left untouched for decades can keep growing.

Let’s take a look at some specific scenarios that show how compound interest works for you. These all assume a moderate 6.5% annual investment return on their retirement funds, which is around what most return on investment calculators will be set to automatically, and a retirement age of 66.

Scenario 1: Starting at age 35

• You save $1,500 per year from age 35 to 55

• Total amount invested: $30,000

• By age 66 (31 years after starting), your investment grows to: $186,138

• Compound interest earned: $156,138

Scenario 2: Starting at age 25

• You save $1,500 per year from age 25 to 45

• Total amount invested: $30,000

• By age 66 (41 years after starting), your investment grows to: $373,569

• Compound interest earned: $343,569

Scenario 3: Starting at age 15

• You save $1,500 per year from age 15 to 35

• Total amount invested: $30,000

• By age 66 (51 years after starting), your investment grows to: $749,029

• Compound interest earned: $719,029

These scenarios clearly demonstrate the incredible advantage of starting to save early:

1. Starting at 35: Your $30,000 investment grows about 6.2 times.

2. Starting at 25: Your $30,000 investment grows about 12.5 times.

3. Starting at 15: Your $30,000 investment grows about 25 times.

By starting just 10 years earlier (at 25 instead of 35), you more than double your retirement savings. Starting at 15 instead of 35 results in four times the retirement savings.

The teen summer job advantage

Now, let's put this into the context of summer jobs. If your teen saves $1,500 from summer jobs each year from age 15 to 19 (just five years):

• Total invested: $7,500

• By age 66, this grows to: $190,893

• That's over 25 times the initial investment.

If they save $750 (half of the previous amount) each summer from age 15 to 19:

• Total invested: $3,750

• By age 66, this grows to: $95,446

• Still over 25 times the initial investment!

Even small amounts saved from summer jobs during the teen years can grow into substantial sums by retirement age. The key is to start early and let compound interest work its magic over many decades.

Of course, the best-case scenario is that you start saving early and never stop investing. But the scenarios above demonstrate how important time is as a factor, and how any savings at all—even if left untouched for years—can go a long way.

Motivating your teen

While retirement may seem like a distant concern to a teenager, these numbers can help illustrate the incredible opportunity at hand. Here are some tips to encourage your teen to start saving:

1. Show them the math: Use an online compound interest calculator to demonstrate how their money could grow. To run the numbers yourself, Investor.gov has a calculator that allows you to test out different saving scenarios that work for your financial situation.

2. Make it relatable: Discuss future goals like buying a house or traveling the world, and how early saving can help achieve these dreams.

3. Start small: Encourage them to invest even a small percentage of their earnings.

4. Lead by example: Share your own retirement saving strategies and experiences.

The bottom line

Encourage your teenagers and young adult children to contribute to a Roth IRA or 401(k) from their very first paycheck—and they’ll thank you later as they watch those numbers grow and grow. And remember that no matter your age, you can still take advantage of compound interest, too, even with a small initial investment. What matters is that you start to save and invest ASAP. Check out our guide to how much you should have saved at every age.

Target-date funds have become an increasingly popular investment choice, especially for retirement accounts like 401(k)s and IRAs. Their main appeal lies in their simplicity and hands-off approach to managing your retirement portfolio. These funds are not a perfect solution, however—and it's essential to understand their pros and cons before deciding if they align with your investment goals and risk tolerance.

How target-date funds work

Target-date funds are designed to provide a diversified and professionally managed portfolio that automatically adjusts its asset allocation over time. The "target date" in the fund's name refers to the approximate year when an investor plans to retire. The fund starts with a more aggressive asset allocation, heavily weighted towards stocks, and gradually becomes more conservative by increasing its bond allocation as the target date approaches.

The pros: convenience and automatic rebalancing

One of the primary advantages of target-date funds is their convenience. These funds essentially put your retirement portfolio on autopilot, eliminating the need for constant monitoring and rebalancing. As you get closer to retirement, the fund automatically shifts its asset allocation to become more conservative, reducing your overall risk exposure.

Additionally, target-date funds offer diversification across various asset classes, such as stocks, bonds, and sometimes alternative investments like real estate or commodities. This built-in diversification can help mitigate risk and volatility.

The cons: lack of customization and potential misalignment

While the convenience of target-date funds is appealing, it comes at the cost of flexibility and customization. These funds follow a predetermined asset allocation glide path, which may not align perfectly with your individual risk tolerance, investment objectives, or retirement timeline.

Furthermore, target-date funds often have higher fees compared to individual index funds or ETFs, as you're paying for the professional management and automatic rebalancing.

Another potential drawback is the lack of transparency regarding the fund's underlying holdings. Some target-date funds may invest in actively managed funds or employ complex strategies, which can make it challenging to understand and evaluate the fund's true risk exposure.

Are target-date funds right for you?

Target-date funds can be an excellent choice for investors who value simplicity and prefer a hands-off approach to managing their retirement portfolio. They can also be a good starting point for those new to investing or those who lack the time or expertise to actively manage their investments.

However, investors with more complex financial situations, specific investment preferences, or a desire for greater control over their portfolio may find target-date funds too restrictive. In such cases, building a diversified portfolio using individual index funds or ETFs and periodically rebalancing it may be a better option.

Ultimately, the decision to invest in a target-date fund should be based on a thorough understanding of your financial goals, risk tolerance, and investment knowledge. It's essential to carefully review the fund's prospectus, underlying holdings, and fees before making a decision.

Remember, target-date funds are not a one-size-fits-all solution, and their suitability depends on your individual circumstances. If you're unsure, consulting a qualified financial advisor can help you determine the best investment strategy for your retirement planning.

When you're dealing with multiple sources of outstanding debt, consolidating those debts into a single payment can seem like an attractive solution. Debt consolidation is the process of combining multiple credit card balances, or other types of debt, into a single new loan (or a single credit card) with a lower interest rate.

The goal of consolidation is to simplify your monthly payments and potentially save you money on interest charges. However, it's crucial to understand when consolidation makes sense and when it doesn't, as well as the steps involved in the process.

When debt consolidation could be a good idea

One of the biggest advantages of consolidating your debts is the simplicity it provides. Having to deal with a single monthly payment rather than keeping track of several different ones with varying due dates can make it much easier to stay organized and avoid missed or late payments. This increased convenience reduces stress and the likelihood of accumulating additional fees and penalties.

Here are some signs that debt consolidation is the right move for you:

1. You have multiple credit card balances with high-interest rates, making it difficult to manage payments and pay down the principal.

2. You have a good credit score, which can help you qualify for a lower interest rate on a consolidation loan or balance transfer credit card.

3. You're committed to changing your spending habits and avoiding accruing new debt while paying off the consolidated balance.

When debt consolidation is not the right move

Debt consolidation sounds like a tempting opportunity, but it’s not perfect. In more cases than not, debt consolidation loans don’t make sense. Your average five-year (60-month) debt consolidation loan, even at a lower interest rate than your credit card, may cost more over the long haul than if you just paid your cards down faster.

If these are your reasons for debt consolidation, think twice before acting:

1. You have a low credit score, which could result in higher interest rates on consolidation loans, negating potential savings.

2. You're consolidating debt to free up room on your credit card limits, with the intention of accruing more debt.

3. You're struggling with overspending habits, as consolidation alone won't address the root cause of your debt accumulation.

Steps to consolidate your debt

If you've decided that debt consolidation is the right choice for your financial situation, here are some tips to help you make the most of it:

1. Shop around for the best rates and terms: Don't settle for the first consolidation loan or balance transfer credit card offer you receive. Compare interest rates, fees, and repayment terms from multiple lenders to find the most favorable option. Even a slight difference in the interest rate can result in significant savings over the life of the loan.

2. Create a realistic repayment plan: Once you've consolidated your debt, create a detailed repayment plan that fits your budget. Aim to pay more than the minimum payment each month to accelerate the repayment process and save on interest charges. Consider setting up automatic payments to ensure you never miss a due date.

3. Cut unnecessary expenses: With your debt consolidated into a single payment, take advantage of the opportunity to free up cash flow by reducing unnecessary expenses. Review your budget and identify areas where you can trim costs, such as dining out less, canceling subscriptions you don't use, or negotiating lower rates for services like cable or insurance.

4. Avoid accruing new debt: Consolidating your debt won't provide long-term relief if you continue to accumulate new debt. Change your spending habits and avoid using credit cards or taking on new loans while you're paying off your consolidated debt.

5. Monitor your progress: Regularly review your consolidated debt balance and track your progress towards becoming debt-free. Celebrate small victories along the way, such as paying off a certain percentage of the debt or reaching a specific milestone.

6. Consider debt counseling or financial education: If you're struggling with overspending habits or managing your finances, consider seeking help from a non-profit credit counseling agency or taking a financial education course. These resources can provide valuable guidance and help you develop healthy money management skills.

7. Stay motivated: Paying off debt can be a long and challenging process, but it's important to stay motivated and focused on your goal. Remind yourself of the benefits of being debt-free, such as reduced stress, improved credit score, and more financial freedom.

Consolidated debt is still debt

One of the biggest problems with debt consolidation loans is that they do nothing to change the behaviors that got you into debt in the first place. Instead, they add another creditor to your pile, as you're essentially going into debt to pay off your debt.

While consolidating your debt can provide relief and make repayment more manageable, it's essential to approach it with caution. The sense of accomplishment you may feel after consolidating your debt could lead to a false sense of security, causing you to ease up on your debt repayment efforts. Think about it like this: Debt consolidation loans are financial products, which means financial institutions wouldn’t offer them to you if they didn’t make money from them.

Remember, consolidated debt is still debt that needs to be paid off as quickly as possible. Failing to maintain a disciplined approach to repayment could result in accumulating new debt on top of your consolidated balance, ultimately leaving you in a worse financial situation. The last thing you want is to take out a loan, pay off your cards, and then charge up your cards again while you're still paying off the loan. That does nothing but dig your hole twice as deep.

Consolidation should be a stepping stone, not a destination. Use the opportunity to develop better financial habits, such as creating a budget, cutting unnecessary expenses, and avoiding accruing new debt. Ultimately, the goal should be to become debt-free, not just to reorganize your debt.

The bottom line

In most cases, debt consolidation shouldn't be necessary. Still, debt consolidation makes sense if you can save money over the long term by securing a better interest rate, or if streamlining will make the difference between paying your bills on time and accruing late fees and penalties.

The key is making sure consolidation is part of a larger plan to get yourself out of debt. Consolidating debts into a single loan may simplify things, but it's not a solution to underlying financial struggles.