I have spent a lot of time in the last few months thinking about credit card debt…specifically my credit card debt. You can read the complete story of my dealings with the credit card companies and about new legislation here: www.associatedcontent.com/article/2596307/credit_card_companies_respond_to_new.html. I know that like me, there are many consumers out there struggling to pay down their debt, but with rising interest rates and rising unemployment, it can be difficult. For me there was the added factor that when I got married, one debt became two. In this article I want to share a few tips on how to lower your interest rate, consolidate debt, or transfer balances in order to pay more on the principle and less on interest.
First, the issue of balance transfers. Often credit card companies will send you an attractive offer, giving you 0% interest for six to twelve months if you transfer debt from one of your old cards to the new one, with a fee of around 4% of the transfered balance. This means all your payments during that time will go directly to the principle and save you interest charges. Before you jump at the chance to accept this offer, do a few calculations first. Recently I have had several offers of this kind – no interest payments for twelve months, then an interest rate of 12.99% to 19.99%. Depending on how much you owe, and how much you can afford to pay monthly, accepting this offer may be a good idea. For example, I have an $1,800 balance on a store credit card that delays charging interest for six months. You often see these kinds of deals with furniture and home improvement stores. Say in that six month period I manage to pay $600; at the end of the term I will still owe $1,200, and with an interest rate on the card at 17%, I will be hit with back interest charges of around $150 (not an exact figure)…plus that high monthly interest rate. Now, if I transfer the balance at that time to the new card, I will only pay a $48 fee, and defer paying interest for another year. However, this offer can be detrimental in the long run if you transfer a balance from a card with a lower long-term interest rate to that with a higher one.
If you don’t want to consolidate your debt onto fewer cards or take out a lower interest loan, (a home equity line of credit, for example, often has a much lower interest rate than your cards) you could try to get your credit card companies to lower your rates. Currently, this is easier said than done. Because of New legislation restricting absurd interest hikes, many banks and credit cards raised interest rates before the new laws took effect (for more information see link to my article above). There are a few things, however, that you can do.
The first is to call your credit card company and ask nicely if they will lower your rate. If you have a good payment history and have using their services for several years, there is a good chance they will oblige you. With the new administration however, the customer service rep might tell you there is nothing he can do. In that case, ask to speak to a manager — they are obligated to transfer you. When I did this, the manager told me she was putting my case before a committee for review, and to check back in a few days. I did…and was promptly declined. If you get this far, don’t give up. I immediately called back and asked to speak to another manager. This time he looked at my account while I was on the phone, and dropped my rate considerably then and there. In these cases, persistence is the key. If one person tells you they don’t have the authority to lower your interest rate, continue to call until you reach someone who does, or who cares enough to help you.
Another action you can take is to evaluate all your debt through a free website such as mint.com. Mint actually has a checklist that you can go through to eliminate your debt faster, including a chart that informs you which credit cards to pay off first in order to minimize the amount you pay on interest. Most helpfully, it suggests other credit cards to apply for. While at first obtaining MORE credit cards may not seem like a good idea, it can save you in the long run if you transfer your balance to a card with 0% APR for a limited time AND with no balance transfer fee.
Next, get a credit report from one of the three major credit reporting agencies: Experion, Equifax, and TransUnion. Check for costly errors; maybe one of the credit cards you paid off is still carrying a balance (this can happen when you pay off a card before the monthly interest has been added to your bill), or your limit is incorrectly stated.
Finally, make paying of your credit card debt a primary life goal. It’s stressful to know you are paying tens, hundreds, or even thousands of extra dollars a month for purchases you have made in the past. If you have made a purchase with a card that offers 0% interest for a limited time, six months for example, make sure you budget to pay off that purchase during that time frame before the interest jumps up to 29%. A little research on sites like mint.com can help you evaluate areas in which you can cut your spending and balance your budget.