Debt solutions - get lower interest rates
You've got $13,000 in credit card debt. You've been struggling to pay more than the minimum on
the cards. Your cards are nearly maxxed out. Occasionally, your payment arrives late, and the
credit card companies hit you with a late fee. Sometimes, the late fee ends up putting you over
the limit, so the companies hit you with an over-the-limit fee. You've come to realize that you're
in a losing situation. Take heart -- there is a way out.
First steps first
First, you need to budget. Track your expenses, cut them to
the bone by getting rid of habits that are costing you too much money. Even if the cuts only
amount to $100 a month (and many of us can find 3 times that much in savings), you'll be able to
get yourself started on the road to eliminating your credit card debt.
Second, you need to realize that the many advertisements that claim that "credit card debt is a
hoax" are, in fact, fraud scams. When you use your credit cards, you expressly agree to repay
what you spend on them plus any and all interest charges and other fees that the credit card
companies decide to charge you. You cannot simply "will away" your accumulated credit card debt.
There are no secret laws, no secret plans, no loopholes to get you out of your mess. You've
gotten yourself into it -- the time has come to get yourself out of it.
Let's say that you've got 3 credit cards, and the total debt is $13,000. The interest rates they've
been charging you range from 18% to 24.9%. You've been paying $300 a month on the cards, but
you're not getting anywhere on paying them down. It seems that every couple of months, at least
one card hits you with the double "late fee/overage fee" combination. If we assume that
you've stopped ringing up purchases on your plastic, I can show you several ways to pay your
credit cards off in full, in just a handful of years.
Increase your payments by cutting your expenses
If you add the $100 in savings you came up with by budgeting to the $300 you're already paying
the cards, then you'll have $400 to pay down on the debt each month (and they said I was lousy in
math!). The first month, pay the minimum on two of the cards and put the rest on the card that is
closest to the limit. That usually will be the one that keeps getting hit with extra fees the most
often. Next month, do the same, but with the extra going on one of the other two cards. The following
month, do it again, this time putting the extra on the third card. What does this do? It should
stop all the over-the-limit fees that they keep hitting you with. Many cards nail you with fees
of $50 or more for being late or over the limit. Even when it's their own fees that put you over.
So, the first thing you need to do with your new payment plan is to eliminate the possibility of
you going over the limit. Needless to say, you need to schedule your payments so that they are no
Once you've built up a cushion of room on each card, pay 3% of the balance on each of them. If you
have leftover money, put the extra on the card with the highest interest rate. If you've stopped
using your cards, you'll start seeing the balances slowly start to fall.
Lower interest rates will speed up the process
But we're not done yet. Getting the payments up to 3% is just the start. We actually want to get
lower interest rates. Getting the rates down to 10-15% will speed up the repayment process and
get you out of debt earlier.
After about 6 months of steadily declining balances, one or two of the credit card companies will
start sending you letters offering low rates on balance transfers. They're not doing this out of
the goodness of their corporate hearts. And they're not rewarding you for getting your finances
under control. By reducing your balances, their profits from you are dropping. So, to drive your
balance back up, they offer you a short-term reduction in interest rates if you transfer a balance
from another card.
Read the fine print carefully! Many will offer you 9% or 7% (or even 0%) but only on the
transferred amount, and only for 6 months. The existing balance you have is still being dinged
at the previous rate, and, when the special rate period ends, the amount remaining on the
transferred balance shoots up to the full rate too. Money that you pay them will go first to the
transferred balance (since they're not making any money on it during the special offer period).
Your existing balance remains unpaid. And you're paying the full interest on it. Like I said,
they're not doing it to reward you, or because they like you. They're doing it to maximize the
amount of interest they can extract out of you.
That's not to say that these special transfer offers are all bad. Occasionally, you can get a
credit card company to scrap the special rate period, and offer a permanent lower rate, either
on the transferred balance, or the whole debt. Generally (and there are exceptions), these are
offers that you want to consider taking. Moving $2000 from a card that's charging you 21% to a
card that is now only charging you 15% (or less) for the entire balance will enable you to pay
down your credit card debt faster. Pretty soon, the other two cards will make offers of even
lower rates for your entire balance. You've now got the credit card companies competing for your
business. Be careful, though, to pick and choose the offers you take. Again, read the fine print
and run the numbers through the different options available to you. Also, don't keep switching
from one card to another too frequently. That actually shows up on your credit reports and can
damage your credit rating.
An easy way to lower your interest rates
Another way that you can get lower interest rates on your cards is to write the companies after
you've paid down the balances by about 20% or so. In the letters, state that you're following a
strict budget, and that you've been able to reduce your debt by 20% (or whatever). Then tell them,
once you've paid them all off in full, that you'll be cancelling two of the cards. The one
company that will have your business when the time comes will be the one that offers you the
best interest rate now. You can even do this over the phone. Many of the customer reps
that man the phones are authorized to offer much lower rates to customers who have significantly
improved their payment history (and balances). All you have to do is ask.
You don't need to pay a company hundreds of dollars to negotiate a lower rate or a reduction in
the balance. Just follow the common sense advice that you've just read, and the companies will
fall all over themselves to offer you lower rates. You could have your credit card debt paid in
full -- all by yourself -- in 3 years or less.
Congratulations for taking the first step to a brighter financial future.
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