When you are trying to get out of debt, every penny that you put towards your debt gets you one step closer to your goal. Unfortunately, with some types of debt- especially high interest credit cards and store cards- a lot of the money you send in each month is eaten up by interest. If you can lower your interest rate, more of your hard earned cash can go towards paying down the principle and getting rid of the debt once and for all. So, how do you lower the interest rate? Here are three possible ways.
Consider a Balance Transfer Offer
A balance transfer allows you to move credit from one credit card to another. One tactic many credit card companies use to try to get new customers is to offer a special promotional rate on balances transferred. For instance, a credit card company might offer you a rate of 0 percent interest for six months or a year for any balance you transfer.
There is usually a fee for a balance transfer offer (the standard is between 3-5 percent of the amount transferred) but if the interest savings is significant, a balance transfer offer can make a lot of financial sense. If you are being charged 29 percent interest on a store credit card, for example, and you pay a 3 percent fee to be move the money to a card where you are charged no interest for a year, you’ll have a 26 percent savings.
Before doing a balance transfer offer, you should be sure you have a reasonable plan for repaying the debt you transfer before the promotional offer expires. At the end of the promotional period, the interest rate will normally rise sharply, so you will either need to have the debt paid off by then or be very confident that you can move any remaining balance onto a lower-interest rate card.
Ask Your Creditors
One of the simplest and the easiest ways to lower your interest rate is to simply ask your creditors to lower your rate for you. In fact, this should usually be tried before you consider a balance transfer offer.
Credit card companies spend a lot of money getting customers and they don’t want to lose your business once they have you. When you find out about a possible balance transfer or receive a balance transfer offer in the mail from a credit card company, call your own creditor and tell them you are thinking about moving your money and closing your account. Let them know you plan to take this action if they do not lower your interest rates. Rather than losing you as a customer, many credit card companies will be more than willing to drop your rate down, especially if you have been making payments on time. If they say no, the worst that happens is you can then take advantage of that balance transfer you were using as leverage.
If the first customer service representative or supervisor that you speak to is unwilling to help you with this, you can try back again later and speak to someone else. This is also a trick you can do more than once. If your interest rate is lowered but another balance transfer offer comes along a few months later, never hesitate to call and ask for another change.
Consider Consolidating Debt
Debt consolidation is another possible way you can lower your interest rate, but it is important to understand what you are getting into before you choose this method. Debt consolidation involves moving your credit card debts to a new, lower interest rate loan. You can use a special debt consolidation loan, a personal loan or even a home equity loan or second mortgage.
Taking a cash out second mortgage and using some of the money to repay your credit card debt can be a great way to get the lowest possible interest rate on your debt, however, there are some significant risks. First, you’ll be taking equity out of your home and if property values fall, this could make it harder to sell. Second, you are putting your home at risk and transferring unsecured credit card debt into secured debt. While a credit card company is rarely going to come after you and take your house if you don’t pay, a mortgage lender will. Therefore, will this step could potentially save you the maximum amount of money in interest, you should only do this if you are 100 percent confident that you can repay the debt and not get yourself into any more financial trouble.
Guest Blogger, Christy Rakoczy writes about financial affairs and budgeting at www.MoneyFile.net, a personal finance blog in the saving and financial advice sector. Christy also writes about money saving tips, investing, mis-sold mortgages, frugality and credit rating advice.
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