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You’re Paying Too Much: 3 Ways to Cut High Interest Rates

Katie Doyle  |  December 19, 2018

The Fed just raised a key interest rate (the federal funds rate) for the fourth time this year — and experts are expecting another two increases to follow in 2019.

So what does a Fed rate hike mean to you? If you haven’t already gotten aggressive about locking in the lowest interest rates possible, it’s time.

We’re talking about your mortgage rate, certainly. Mortgage rates have been below 5% for almost a decade, but they’ve been heading north over the past year. Bankrate reported that 30-year fixed-rate mortgages were at 4.83% last week. That’s up more than three-quarters of a percentage point from a year ago. But mortgages aren’t the only loans that offer you a chance to save by locking in lower rates. Car loans and student loans can be refinanced. Credit card interest rates can be lowered, too, sometimes by asking your lender for a break, others by transferring your balance.  

Here are the three things you need to do to put some of these interest-related dollars back into your wallet:

Work Your Credit Score

Your credit score is a major factor in determining the interest rate you’ll pay on a loan. For the best rates, you should have a really good credit score (760 or above) and a near-perfect payment history. Don’t know your score? No problemo. It’s easy to snag for free. Amex, Discover and Capital One are just a few of the companies offering free credit scores as part of their card perks. You can also get your score from sites that want to sell you better deals on credit like Credit Karma and Savvy Money.  

You can (and should—looking at you, mom!) also pull a free copy of your credit report from each of the major credit bureaus once every 12 months. Just head to to get your copies. If you find mistakes, they may be one of the things dragging your score down. Filing a report with the bureau that there’s information on your report that doesn’t belong to you is the first step in getting this remedied.

If you haven’t already gotten aggressive about locking in the lowest interest rates possible, it’s time.

What if your score isn’t where you want it to be? Start paying your bills on time every time (automating payments can help), if you’re revolving debt on your credit cards work up a plan to pay it down. Aim to use no more than 10% to 30% of the credit limits available to you. Don’t apply for credit you don’t need. And don’t close old cards you’re not using unless they have hefty annual fees. Your score won’t pop overnight but it will over 12 to 24 months of good behavior.

Refinance Mortgages and Car Loans

There may be no financial move easier than refinancing an auto loan. Seriously, it can be done in less than an hour, and auto loan rates are likely lower than they were when you got yours (particularly if you didn’t shop for financing strategically). ValuePenguin reports that the average interest rate on a 48-month auto loan from a commercial bank has fallen by more than 40% over the last decade. Credit unions often have the best interest rates, but you can use a number of online auto loan search tools to compare loan rates in your area.  

Refinancing a home loan is likely something you’ve done already if you’ve been in the home a while. But if you’ve been improving your credit score, it could be time to tap the well again to get a better interest rate. Refinancing a home loan is a more involved transaction than a car loan is, but the general rule of thumb is that you should plan to be in the home long enough to recoup the closing costs with the money you save by refinancing to a lower rate. To do the math, try running your numbers through Fannie Mae’s refinance calculator.

Consolidate Your Student Loans

Americans owe more than $1.52 trillion in student loan debt, spread out among about 45 million borrowers, according to Student Loan Hero. And many of us are paying more than we should in interest. Refinancing your federal student loans—and parent loans, like PLUS loans—with a private lender is worth a look to make sure you’re paying the lowest interest rate possible.

You likely have loans at a variety of interest rates (I know I do) so choose to refinance only the ones that will save you in the long run. And be sure that by refinancing to private loans you’re not giving up something you’d like to keep: Federal loans have protections like a variety of repayment options—plus loan forgiveness for public service workers—that private loans do not.  

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