Wednesday, October 30, 2013
How To Reduce Credit Card Interest Rates
IntroductionCredit cards are nothing new to American consumers. Everywhere you look, Americans are constantly being asked to apply for a new credit card! Now, you probably know what the selling point is with most cars, THE INTEREST RATE! This is because the interest rate or APR on your credit card delegates how much money you will have to pay back over the life of the loan. A lower interest rate means that you are going to pay less back! Due to this commonly known fact, I am asked the same question time and time again, "How do I get lower interest rates on my credit card?" Unfortunately there is not a vague one size fits all answer to this question. The answer really depends on a few key factors. First off, how good is your credit? Also, how many late payments did you make over the last year? Have you experienced a financial hardship? What is your debt to income ratio? Can you even afford your credit card payments?People in all walks of life want a lower interest rate however, it is hard for me to give one piece of advise and have it fit everybody's financial situation to the tee! It just doesn't work that way. What I can do however is give you a few different ways to reduce your credit card interest rates and allow you to pick which one will best fit your unique financial situation!How Good Is your credit?When I am asked how one of my clients can reduce their credit card interest rate, one of the first questions I'm going to ask is "How good is your credit?" The better your credit score is, the more options you have to reduce your credit card interest rate. If you have good or excellent credit, one of the best ways you can reduce your interest rate is by getting a balance transfer credit card. Balance transfer credit cards are ones that allow you to use one credit card account to completely pay off the other.Lets say you are something like a great majority of American consumers and your credit isn't all that great. This is completely understandable, if you don't have excellent credit, that doesn't necessarily mean that you have to deal with a horrible interest rate. There are ways to get a lower interest rate other than using balance transfer credit cards. These include do it yourself interest negotiations, financial hardship programs, debt consolidation, debt settlement, and much more! I'm going to explain to you how to use balance transfer credit cards, negotiate credit card interest rates, apply for a financial hardship, and decide if debt consolidation or settlement is your best option.Using Balance Transfer Credit Cards To Get A Low Interest RateOK, so you have pretty good credit and you seem to make all your payments on time. You've never went over your credit limit and you don't see why your interest rate is so high. You're starting to get frustrated with the amount of money you are spending in interest and finance charges so you do a little research. You've heard a thing or two about balance transfer credit cards but you don't know exactly how they work or what is the first thing you need to do to get started. That's OK here is everything you need to know.First off, when looking for a balance transfer credit card, it is important to remember a few crucial steps to keep your financial information safe. When filling out an application, make sure that the application page is a secure web page. As far as most credit card websites are considered, the whole website won't be secure because there is no need for it to be. However, never fill out the application if the application page is not secure. This may put your personal information in jeopardy. It is very easy to tell if a web page is secure or not. When you get to the application page, take a look at the address bar at the top of your browser. If the web address starts with http://, this page is not a secure page. However, if the application pages url starts with https:// this is a secure page and your information is safe.The next thing you want to look at is the introductory interest rate that the credit card offers. Due to huge competition in the credit card industry, most balance transfer credit cards offer you a 0% introductory period for balance transfers that lasts anywhere from 6 to 12 months. Make sure that the balance transfer credit card you decide to use has a 0% introductory APR as well. If not, I'm sure you can find a better offer.Also, make sure you understand how much money the transfer fee will be. Yes I said transfer fee! Banks don't do anything for free anymore. In most cases the fee to transfer a balance will be anywhere between 3% and 5% of the amount of the overall transfer. It is important to be aware of this fee but not to let it scare you off. Even though there is a fee for the transfer, if you are receiving a 0% APR for 12 months, you can consider this fee as the interest rate on the account for that first 12 months. In most cases, it will still be less than your current interest rate.Make sure you pay attention to the standard interest rate on the account. Always remember, although a 0% introductory interest rate looks great, it doesn't last forever! The standard interest rate will be the interest rate you pay once the introductory period expires. Make sure that the standard interest rate on your new balance transfer credit card is less than what you are currently paying. If not, the transfer may cost you more over the term of the debt and it might not be in your best interest.Credit Card Interest Rate NegotiationsSo you've been a pretty good debtor. You were only late once this year, and you haven't gone over your credit limit. You like the bank you are currently with and you don't want to have to go through the hassle of transferring balances. You don't want to close your account and your not quite sure of what you should do but you definitely don't appreciate your interest rate! Credit card interest negotiations might be your best bet.Credit card companies just like any mom and pop store, rely heavily on consumers to keep their company strong. Look at it this way, if no one used the credit card companies, there would be no reason for them to be in business. With that said, some credit card companies are willing to reduce your interest rate to retain you as a client. This is a fairly simple process.The first thing you want to do is call your credit card company. Continuously press 0 until you get to speak with a live representative. When the call does get transferred to a live representative, simply say, "Hi, I was going through my credit card statements and I noticed how high my interest rate was. I love working with you guys, I like my card and the rewards you have to offer me, but, I have many balance transfer opportunities and I don't see why I should keep my balance with you if I can pay a lower interest rate. Is there anything you can do to help?" That representative is either going to put you on hold or transfer you to the balance retention department!If transferred to the balance retention department, use the same line "Hi, I was going through my credit card statements and I noticed how high my interest rate was. I love working with you guys, I like my card and the rewards you have to offer me, but, I have many balance transfer opportunities and I don't see why I should keep my balance with you if I can pay a lower interest rate. Is there anything you can do to help?" They will then put you on hold. In most cases, when the representative gets back on the phone, they will give you two options. Either you can have a very low interest rate for a short period of time or, they will reduce your interest rate by a few points for the term of the debt. I know the extremely low interest rate is always more appealing, however, I would advise taking the minor reduction for the life of the card. This will be the option that saves you the most in the long term.Setting Up A Credit Card Financial Hardship ProgramYou've tried applying for a balance transfer credit card and you were declined. You called your credit card company to negotiate and they wouldn't do a thing. You can't afford your payments too much longer if you keep this high interest rate! Your not sure what you should do, but you know you don't want to fall behind. In this case, it may be time to apply for a financial hardship program with your credit card company.Due to the severity of the current financial recession, most large credit card companies such as Chase and Bank of America have created financial hardship departments. In these departments, representatives are trained to take an over financial analysis and make a decision as to whether or not you can afford to make your payments and still live a normal lifestyle. Depending on the severity of your unique financial hardship, the credit card company may be willing to keep the debt in house but still help you by closing your account and reducing your interest rate.The first thing you will want to do is make a list of all of your household income. If you get rental income, make sure to include it. It is important that you include every dollar of income. Next you will want to make a list of all of your expenses. I mean all of your expenses from mortgages to auto loans to credit cards to gas, food, day care, reoccurring medical expenses, etc. Make sure to include everything. Also, make a note of what has caused your expenses to increase or your income to decrease.Once you have written all of this information down, call your credit card company. Tell them about your financial hardship and ask if they have a financial specialist you can talk to. You will then be transferred to the financial hardship department. When speaking to the representative make sure to be very polite and very honest. If you are truly in need, once the results of the analysis come back, you will receive a new interest rate and payment plan!Debt ConsolidationThings are starting to get serious. Your job has cut your hours or you have been out of work for a little while. You are absolutely certain that you can't afford even your minimum payments anymore and you have no idea how to get assistance or what to do next! In this case, you may want to look into debt consolidation.There are a few types of debt consolidation. Balance transfers are one type but you already tried and you don't qualify. You've heard a bit about home equity loans and you're considering taking out one to pay off your credit card debts. DON'T DO THAT! If you don't pay your credit card companies, the worst thing that can happen is they take you to court and you get a judgment on your credit report. They can't take you to jail! If you pay your credit cards off using the equity in your home however and you can't afford the payments, now you're homeless. The type of consolidation you want is a debt consolidation company.Debt consolidation companies are companies that have already pre-negotiated low interest rates with most major and even small credit card companies. They will take an analysis of your financial situation and place you in a program that fits your needs. When choosing a debt consolidation company, it is important that you choose the right one. Do your research and make sure you are using a reputable source! Google the name of the company and check the Better Business Bureau to make sure you are dealing with a known company!Debt Settlement PlansNow, you are in a serious situation. You feel that your finances are falling apart. Your car is in danger of being repossessed and you don't know how you are going to make the next payment for any of your loans. You are consistently thinking about bankruptcy but you wish there was one more thing you could try. Debt settlement may just be that thing. Keep in mind however, that debt settlement should be a final resort before bankruptcy. This process will, not can, it will have a detrimental effect on your credit score!The way debt settlement works is, the company you hire will collect very minimal payments to go towards your debts each month. These payments will go into a sort of savings account until your payments have reached a delegated amount. All this time, the credit card companies are not being paid. Once the credit card companies are at the point where they feel they are going to get nothing back, in most cases they are willing to settle the debt for a minimal amount. This is when the debt settlement negotiations go into effect. The debt settlement company will work on your behalf to make sure to ensure that you get the lowest possible settled amount for your debts.When choosing a settlement company it is the same as working with a consolidation company. Do your research! I can't tell you how many people I've talked to that have been screwed by a crook debt settlement company. Make sure to Google the business name and to check with the Better Business Bureau before giving any company your business!