by Tricia
One of the most asked questions I have received involved getting the interest rates lowered on credit cards. It is disheartening to hear stories of those with interest rates over 20%. That makes it so hard to pay them off!
I have read and heard over and over again to call them to simply ask for a lower rate. For me, up until recently, over and over they told me no. A study I read about (and I can’t remember where I read it at the moment) claimed that calling your cards and asking to reduce the rate helped a little over 50% of people who tried it. Before I started paying off my debt, I was clearly in the group it didn’t work for.
I really wasn’t a good customer in their mind. While I paid my card on time, I only paid the minimum payment. I also had a huge debt-to-income ratio and my cards were almost maxed out. That made me a high risk to them and a high risk means that a higher interest rate is needed. That hurt my chances of negotiating a lower rate and I believe that is why calling wasn’t working for me.
Since I couldn’t get a lower rate, the only thing left to do was to pay off as much as I could on my cards. I needed to lower my credit utilization (how much of my credit limit I was using) as well as make sure all payments are made on time. Both of those factors, when reduced, actually work to increase one’s credit score. If you don’t have much spare money with your income to send more money, perhaps selling things would be a way to make some money or even obtaining a temporary part-time job. Make a dent in your debt and be very agressive with doing it.
Once I had paid off some of the balance on my credit cards (that’s where all of my 2005 tax return went), I was able to finally call them and get a lower rate. My credit score was improving and our debt-to-income ratio was lowering. They even told me on the phone that I was a “good customer” and qualified for a lower rate (by 3%)
The improvement in my credit score also made it possible for me to obtain a new credit card to use to transfer a higher rate balance onto. I only have the low rate for 12 months, but that is 12 months that I have to keep paying off debt and having more of my payment going towards the balance and not interest. (Just a word of caution: with balance transfers, make sure you pay every payment on time or you may be faced with an interest rate over 30%.)
Even with the balance transfers, I still ended up with a balance of $3,500 that I couldn’t transfer. I had heard about people to people lending through Prosper.com and decided to try to borrow $3,500 through there to reduce my interest rate. Thankfully, I was able to receive a loan and it reduced my interest rate by 4%. A word of note here, not everyone is able to get a loan from Prosper at a great rate. Even though regular people are lenders there, they still are looking for a return on their money. They will determine the amount of risk with your loan and decide the interest rate that they feel is comfortable for the risk.
It’s not easy. We have been sacrificing some things for a while and pinching pennies wherever we can to find extra money to send to our credit cards. We also are working more for a while (I currently work a full-time and two part-time jobs and my husband works full-time). But it is worth it to finally get our debt paid down and to get our rates lowered.
In the end, always rememer to do what is right for you and your situation because every situation is unique. What worked for me may not work for everyone and I am far from a financial advisor. What I described above has worked for us.
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