This week we feature advice on what to do the first week that you decide to get out of debt. Some of the activities you should consider doing right off the bat are things that are not too time-consuming and can make a large impact on your debt moving forward.
Step One: Contact Your Credit Card Issuers About Having Your Interest Rates Lowered
Contacting your credit card companies is straightforward and easy. Here’s the step-by-step process:
1. Amass all of your credit cards. This includes those that do not sit in your wallet and ones for which you may not even have an outstanding balance.
2. Find out your outstanding balances on each card, the current interest rate on the card, the contact phone number (usually listed on the back of the card), and your credit score. Pulling your credit score from each of the three major ratings agencies (Experian, Transunion, Equifax) is free once per year.
3. Brainstorm and write down as many reasons that you can think that you should have your rates lowered. Some of the reasons might include:
- Good payment history
- Proven ability to meet payment deadlines, even if just the minimum payment is made
- Long credit history with the particular lender
- Significant transactions made on the card, either one-time purchases or consistent spending with the card over time.
- Good credit score
- Unsatisfied service from the credit card currently or in the past
The secret to the credit lending industry is that they are faced with fierce competition to get customers signed up for their cards. But the issuer may not believe you fully understand your alternatives unless you present them over the phone in clear terms. This leads to the second step: quickly identifying your best alternatives to each of your current credit cards.
Step Two: What are your best alternatives?
To figure out your best alternative, research other card offers that you will qualify for. Write down all of the introductory rates that you will get were you to sign up for another card, the quick facts to any balance transfer programs that they offer, and the limit on the credit card that they are willing to offer you. An excellent database of different credit cards is at
CardRatings.com. Then simply call up each credit card issuer and explain to them that you will do a full balance transfer to a new zero percent rate card at another lender unless they lower your interest rates. While this strategy should produce results, for some, this will not be adequate to convince the issuers to lower their rates. Then, consider pairing your battle to lower rates with an effective approach to eliminating debt: snowballing.
Combine with the Snowball Method
A creative way to combine your efforts to have your credit card interest rates reduced is to sync this approach with the
snowball method. As you clear the balance on each credit card by snowballing your debt payments, that particular card with the new zero balance becomes your negotiating leverage. First, call the card issuer with the zero balance, explaining to them that you had been unsatisfied with service on it and as a result paid off the card entirely. Suggest to them that if they want your business moving forward, they offer you a much better interest rate on the card. Then specifically ask them what their company-wide base rate is for their cards. Once they tell you this, you can easily figure out a new interest rate for your card. Specifically, the issuer should be able to offer you a new rate equal to prime rate + issuer’s base rate. If this new rate is lower than your current rate on that card, then it might be a good option to take. If this doesn’t work, then just tell the credit card issuer your new interest rate on any of your zero balance transfer options and that to stop the transfer, their rates need to be lowered.
As you clear more and more balances with the snowball method, call up each of those issuers and run through the same discussion. For any future reduction efforts, your leverage is even higher, because you have not one but mulitple cards with a zero balance. Once you have several cards with new, reduced interest rates, any additional cards for which you want the interest rate lowered is easier to discuss since the suite of reduced-rate cards you hold will, in a sense, represent a market standard for what you should be offered in the first place. In short, while this approach may take some time, it is sure to pay off. Keep in mind that with this combined strategy, you will want to prioritize paying off the cards with the lowest balances first.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
