Hopefully you pay attention to the interest rate you’re paying on your credit card and hopefully you’ve realized how outrageous it is. In working to pay off your credit card debt, always remember that reducing your interest rates now will save you a lot of money in the future and your debt payoff will be that much faster.
Interest is how credit cards make their money of course, so they’d need a pretty good reason to lower yours.
Option 1 – Buy A Lower Rate
This may not be too common, but some credit cards offer a plan where you can pay an annual fee for a lower interest rate. For example, BMO’s “Preferred Rate” Mastercard offers a regular rate of 17.5% or 11.9% for $20 per year. Check with your institution to see if they have this option. If they do, and options 2 and 3 below don’t work, this is the perfect way to save some money on interest.
Option 2 – The Threat Of A Competitor
Banks want to make money from your interest payments. If you tell them you’re going to switch to another card and move you balance over to that one, they’re at risk of losing all future income from you.
Call and say something like this:
Hello, my name is Roger Smith and I’ve been a customer of yours for 12 years. I’ve received several offers in the mail recently for credit cards that offer a balance transfer with 0% interest for 6 months and then a lower interest rate than I’m paying now. I’d prefer to stay with you, but I need you to lower the interest rate on my card.
Once they offer you a new rate, you can accept it or push a bit harder. The only caveat is you should actually be willing to move, and the offer you mention should be real.
If the service rep refuses you can always try back in a day or two (or even right away if you’re feeling lucky) as a different rep may be more willing to help you.
Option 3 – The Threat Of Bankruptcy Or Default
Similar to Option 2, your bank would rather have some of your money than none. Suggesting that you’ve built up a massive debt load and are having problems paying it back may be enough to get a lower rate on your card.
Call and tell them:
Hi, this is Robert Smith and I need your help. I recently had a couple financial emergencies and was forced to put some of my large expenses on my credit cards. I have a card with you and a couple with other banks. The truth is I now owe over $_______, and if I can’t get some help with these interest rates I’m going to be forced into bankruptcy. These are my debts and I want to pay you back, but I need your help in making that possible. What can you do about lowering my rates?
By explaining that you’re in a bit of a desperate situation AND that you really do want to pay off your debts (and not borrow more money), you should have pretty good luck getting your rates reduced.
Always be polite, and if the person you’re speaking to can’t help you, ask to speak to someone who can. If your relationship with your bank has been a good one, you can bring up the fact that in the past you’ve paid off other loans on time and that you’re not a high risk borrower.
What To Do With A Lower Interest Rate
Once you’ve successfully had your rates lowered, it’s time to make sure it means something. Lowering an 18% loan to an 11% loan isn’t that great if it still takes you 20 years to get out of debt (cheaper yes, great, no).
You want to get back to focusing on paying off those debts as fast as possible. A lower interest rate means a higher percentage of your money goes towards your principal every month, so you should start to see real progress soon.
And if any part of you wants to buy that new TV because of the low interest rates, it might be time to fill up a cup of water, drop your card in, and put it in the freezer until you know better.