Cyrus Purnell, Contributor
Oct. 5, 2020
Sick of paying high interest rates on your debt? Lowering your interest rate can quickly decrease required payments, freeing up money to direct toward your other needs or to pay down your debt faster. Maybe you’ve heard advertisements about credit repair agencies promising secrets to saving you thousands of dollars in interest. The truth is that the methods used by reputable credit counselors are simple and can be done on your own without going through a paid service. Here are some of those tips so you can take advantage of lowering your interest rates ASAP.
Know the facts about your debt. Put together a debt inventory so you can see the amount you owe and the interest rates you are paying. You can typically find your annual percentage interest rate (APR) on your monthly statement. This information will help you be strategic in the upcoming steps. Credit card and credit line interest rates can move up or down, so the rate you remember may have changed.
Call your lender and ask for a lower rate. Before you take any steps to move funds from one account to another, be sure to call your current lender and ask for a lower rate. This often works best if you do a little research to confirm that the lender offers a lower rate than you have. Sometimes that means asking for your account type to be converted to another, which is usually easy to do as long as you qualify for the new type of account.
If the company says no, you are no worse off. Taking the time to negotiate with your lender can often yield the same returns as hiring a professional credit counselor. Once you have tapped into the best rates your lender has to offer now, it is time to work through your options.
Exchange high interest rates for lower rates. After you have updated your debt inventory with your current rates, examine your existing opportunities. Do you have open lines of credit like a home equity line or personal line of credit with lower rates? You can reduce your overall interest rate by shifting the higher interest debts over to those credit lines. If you do not already have a home equity line but possess significant home equity, this type of debt can be helpful.
Perform a balance transfer. This is when you transfer an existing credit card balance to a different card, which has a lower interest rate. If you have decent credit, you’ll likely get offers for this type of transfer in the mail. While balance transfers can seem like an excellent opportunity, there are some pitfalls to be aware of:
Promo rates — Most balance transfer deals offer you a promotional rate that you’ll pay on the amount you transfer. Still, it often comes with an overlooked asterisk: any new purchases you make are usually charged a higher rate. To beat the credit card companies at their own game, avoid using the new card to shop while paying down your balance or you’ll most likely negate the interest savings of the balance transfer and could end up worse off in the long run.
Transfer fees — Most balance transfer offers include a charge, which is typically 1% – 3% of the balance you’re transferring. For example, if you are moving a $3,000 balance to a card with a 3% transfer fee, you’ll be starting with a balance of $3,090. If you are planning to transfer money, ask to have the fee waived or lowered.
Rate expiration dates — Usually, the low rate that card companies offer to entice you to transfer your balance has an expiration date somewhere between 8 and 24 months after you open the card. Be sure that your debt reduction plan includes that same end date so that you can either have the balance paid off or transfer it to another card.
After taking these steps, the key is to keep your interest rates low. That means using debt wisely by paying off credit card balances monthly or not using them at all. Also, continue to manage your longer-term debt by making payments on time. These tips will keep the door open to use that low interest rate for bigger goals in the future.
© 2020 Forbes Media LLC. All Rights Reserved
This Forbes article was legally licensed through AdvisorStream.