Card companies are offering deals -- from lower fixed rates to write-offs -- even as they cut credit lines. Here’s how to control your plastic.
Debt-Renegotiation Tactic: Get Your Story Straight
Without knowing exactly how much debt you’re dealing with, you can’t put a dent in it. Pull together all of your monthly statements from lenders and make a list of who you owe and how much it’s costing you every month.
Do you have credit cards with interest rates of more than 12 percent and additional monthly fees of more than $5? Try to reset these rates with the existing card company or by taking your business elsewhere. Hint: You’re much better off negotiating with your lender if you know where any problems are on your credit reports -- get them free at AnnualCreditReport.com.
Debt-Renegotiation Tactic: Ask…and You May Receive
Now that you’ve got your head around your debt, it’s time to try charming some customer service reps. Has your ability to meet your obligations changed lately, or do some costs look totally out of whack with the best interest rates at comparison sites such as BankRate.com or Credit.com? Can the bank beat a better deal you have elsewhere on balance transfers, refinancing or other account changes? You’re looking for a break on the interest rate, a refund of any late or transfer fees, a shift from a floating to a fixed rate with extended terms or, at the very least, a reduction in the size of your minimum monthly payments.
Warning: it’s a bad sign if the credit card company is already calling you looking for overdue payments, but it may give you extra negotiating room to ask for a reduction of the overall debt, especially if you’re a renter without obvious assets. Bank of America, HSBC, and American Express, among other companies, have been eager lately to settle overdue accounts on a case-by-case basis, even if they don’t always get paid in full.
The banks’ new recession logic? Default rates have recently been skyrocketing to double digits along with unemployment -- better to get something rather than nothing. Also, the credit crisis has made a lot of the bad debt worth more as a write-off than for resale. Whatever's offered, keep notes and give yourself time to comparison shop before making a final decision.
Debt-Renegotiation Tactic: Hop on the Transfer Train
Short of getting a lower fixed rate or extending your payment period (both good things), a card company might give you a deal on transferring balances from somewhere more expensive. You’d never know it from the 15- or 20-percent rates on many card balances these days, but the truth is that the costs of lending to the credit-worthy are at all-time lows thanks to recent stimulus programs. Do yourself a (big) favor and search out the best transfer offers through “rate surfing” sites such as the independent CreditCardForum.com. Hey, it can't hurt!
As a general rule, you want to lower your overall interest costs by transferring most (if not all) of your high-interest debt to new, cheaper sources of credit. Teaser rates for balance transfers can be as low as 0 percent for 12 months. But you must be disciplined enough to calculate the transfer costs, which can run upward of 3 percent. Make a note on your calendar ahead of any rate reset. The best deals tend to come from new cards with fewer rewards programs and apply to balance transfers rather than cash advances.
Debt-Renegotiation Tactic: Borrow Elsewhere
Short of rate-surfing tricks, credit cards are generally the priciest of loans. That means you’re almost always better off borrowing against your home with a second mortgage, also known as a home equity line of credit (HELOC), where the best rates dropped under 5 percent this year. Another option: Get a seller to finance a big purchase, such as a car or flat-screen.
There are informal sources too. Most savings accounts pay practically no interest now, so offer to split the difference with a good friend or relative. Instead of paying your card company 12-percent interest, offer to pay your friend 6 percent. You’ll get a really great deal for yourself and your friend will then be earning three or four times the current rate of most savings accounts out there. Established services such as VirginMoneyUS.com will even help you out with the record keeping.
Debt-Renegotiation Tactic: Go in Circles
Pursue the best deals and negotiating leverage by retracing your steps: If a new credit card is offering a monthly 5-percent rate on a balance transfer, call the old card and explain that you’ve been a loyal customer, but you need better terms than your current 15 percent to avoid closing the account (and then taking your business elsewhere). Your bargaining position gets stronger, especially if you have other lines of credit, like home-borrowing, at your disposal. So make your card work for you!
The good news is that most standard credit card borrowing is such a bad deal that a little hustling can save you lots! You may be able to save $1,000+ a year in interest charges for a balance transfer on $10,000 worth of debt.
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