Today I have a guest post from Bill Hazelton, CEO and Founder of Credit Card Assist. Bill interviewed me in his Best of the Best Bloggers Series in January, and today he is going to share some tips for reduce your interest rates on your credit cards. It looks like I have some negotiating tips to try!
It seems we are reminded daily about issues related to the banking industry, from banks purportedly too big to fail, reports of historic profits and outrage about the cost of borrowing money from banks compared to interest banks pay us (e.g., savings accounts, a healthy one of which was once considered part of the American dream). And then there’s credit card debt …
Credit card debt. Three simple words that speak to a complex and, for many Americans, sometimes painful subject. This type of debt has long been considered indicative of the financial health of consumers and, by extension, our overall economy. If the economy slows down, credit card debt becomes even more of part of our financial social fabric.
When times are tough, people tend to use their credit cards for purchasing more of the basics, driving up the balance of their cards. When times get tougher, those same folks make only minimum payments on the credit card. If the total amount owing is large enough, a minimum payment may not be sufficient to keep the balance from actually increasing because the high interest rate adds more to the balance than the minimum payment subtracts. And when people stop making payments altogether, a higher default interest rate may be triggered, spiraling the consumer deeper into debt.
The average consumer credit card rate for the overall market is hovering around 16.87 percent, with the average non-rewards credit card interest rate sitting at about 15 percent and the average rewards credit card rate just over 17.6 percent. Remember, these are only averages. What’s frightening to a lot of people, especially those for whom this fact has become their personal reality, is that there is no maximum rate that can be charged by banks and credit card companies. Credit card interest rates can be as high as 36% for default rates but can also be as low as zero for some of those very alluring 0% APR credit cards, typically offered on a short term, promotional basis only. Overall, credit card rates generally range from 12% to 27%. With few exceptions, there is very little that restricts credit card issuers from charging the highest rate permissible by law.
With credit tighter than ever and everyone (not just those who find themselves unemployed or underemployed) more focused than ever on stretching every dollar, people are looking for ways to reduce their high interest credit card rates and reduce their consumer debt load.
We’re going to look at 8 ways to do just that, some directly and some indirectly. However, the purpose for each step is to either reduce your high interest rate or get you out from under it completely. Here, then, are some suggestions for reducing those interest rates as well as the overall debt you hold regardless of what rate your card(s) may have.
- 0 x 0 = 0. Let’s not forget that a high interest rate is only a problem if you carry a balance on your card. As obvious as it may seem, the most effective way to deal with high interest rates (okay, other than to avoid high interest rate cards altogether), is to pay your card balance every month. No balance, no interest, no headache.
- A half empty glass is still half full. As we’ve already mentioned, minimum payments on a high interest card balance may not make a dent in your total debt. As best possible, pay more than the minimum balance every month. How much more? As much as you can afford without suffering any undue hardship. But you absolutely, positively must pay more than the minimum each and every month. No excuses. (Note from Mrs. Accountability: My rule of thumb if I’m terribly short on money is to pay the minimum, plus the interest charged so if the minimum is $90 and the interest charged is $50, I make a payment of $140).
- If you have more than one high interest credit card, do the math. If you can’t, this is where some math tutoring might come in handy for your financial sake. Figure out which of your high interest cards have the smallest balance and strive to pay it off as soon as possible. Once you’ve done that, take the amount you’ve been applying to that card and add it to the amount you’re paying on the card with the next smallest balance. Repeat. You’ll find that once you start paying more than the monthly minimum on any given card you’ll make progress much faster on clearing the balance. However, once you’ve paid the card off, don’t use it again. If you feel you must keep it around for an “emergency”, then put it safely in a drawer at home (hard to reach for when you find yourself in the store holding that pair of jeans you just have to have!) and don’t use it unless and until there is a true “emergency” that requires you to a) spend money that b) you can’t obtain from any other source.
- There’s a saying that goes: You don’t ask, you don’t get. Rest assured that your card issuer or bank will not unilaterally reduce your interest rate as a gift to you. You must ask. Politely. Remember, the Customer Service Representative you get on the phone is not responsible for either your interest rate or the debt you’ve accumulated. As frustrated as you may be with your circumstances, taking it out on the CSR is not the way get those circumstances to change. A reduction in your high interest rate is not a matter of right. [Note from Mrs. Accountability: If the first rep isn’t able to help you, politely hang up and try a second or even third time, politely asking each time. Hey, this is worth a shot and sometimes works!)
- State your case. You have a record of timely payments and you pay more than the minimum as often as possible. You do, right?
- Negotiate your continuing business. If your request is denied, simply state that you have the opportunity to obtain another card with a lower interest rate but you would prefer to remain with your current issuer. Be careful here, though. If you know your credit scores are not at least 700 it’s unlikely that you’d be extended credit by another issuer and the CSR you’re talking to will know that. If your scores are healthy, don’t hesitate to use this gambit. Don’t give the rep the name of any card however, because he or she will be fully prepared to tell you all the reasons not to do business with the “Bank of ABC”.
- Always find out why the answer is no. If you are denied, you want to know why. It may simply be because your payment history only shows that you’ve paid the monthly minimum. You may be able to successfully request a decreased rate after a certain period of time during which you establish that you can pay more on the card per month than you charge to it. Better yet, pay as much as you can and don’t charge to it.
- If at first you don’t succeed…. Try again in a month and then again a month after that. In the meantime, continue to make your payments in full and in a timely manner. You can also use this time period to actively comparison shop for cards you think you can get. If you successfully apply for one with a lower rate, you can transfer the balance from the card with the higher rate and send that one back to the issuer with a polite thank you note.
If you’re successful in obtaining a lower rate credit card, however, don’t use it as permission to spend as before. The goal isn’t simply to reduce your interest rates; the goal is to reduce your debt.
This is a guest contribution from Bill Hazelton, CEO and Founder of CreditCardAssist.com where he provides a wide range of tips and advice on all things credit-related. Subscribe to his RSS feed or find him on Google+, Facebook or Twitter.