Debt solutions - get lower interest rates

You've got $13,000 in credit card debt. You've been struggling to pay more than the minimum on the cards. Your cards are nearly maxxed out. Occasionally, your payment arrives late, and the credit card companies hit you with a late fee. Sometimes, the late fee ends up putting you over the limit, so the companies hit you with an over-the-limit fee. You've come to realize that you're in a losing situation. Take heart -- there is a way out.

First steps first

First, you need to budget. Track your expenses, cut them to the bone by getting rid of habits that are costing you too much money. Even if the cuts only amount to $100 a month (and many of us can find 3 times that much in savings), you'll be able to get yourself started on the road to eliminating your credit card debt.

Second, you need to realize that the many advertisements that claim that "credit card debt is a hoax" are, in fact, fraud scams. When you use your credit cards, you expressly agree to repay what you spend on them plus any and all interest charges and other fees that the credit card companies decide to charge you. You cannot simply "will away" your accumulated credit card debt. There are no secret laws, no secret plans, no loopholes to get you out of your mess. You've gotten yourself into it -- the time has come to get yourself out of it.

Let's say that you've got 3 credit cards, and the total debt is $13,000. The interest rates they've been charging you range from 18% to 24.9%. You've been paying $300 a month on the cards, but you're not getting anywhere on paying them down. It seems that every couple of months, at least one card hits you with the double "late fee/overage fee" combination. If we assume that you've stopped ringing up purchases on your plastic, I can show you several ways to pay your credit cards off in full, in just a handful of years.

Increase your payments by cutting your expenses

If you add the $100 in savings you came up with by budgeting to the $300 you're already paying the cards, then you'll have $400 to pay down on the debt each month (and they said I was lousy in math!). The first month, pay the minimum on two of the cards and put the rest on the card that is closest to the limit. That usually will be the one that keeps getting hit with extra fees the most often. Next month, do the same, but with the extra going on one of the other two cards. The following month, do it again, this time putting the extra on the third card. What does this do? It should stop all the over-the-limit fees that they keep hitting you with. Many cards nail you with fees of $50 or more for being late or over the limit. Even when it's their own fees that put you over. So, the first thing you need to do with your new payment plan is to eliminate the possibility of you going over the limit. Needless to say, you need to schedule your payments so that they are no longer late.

Once you've built up a cushion of room on each card, pay 3% of the balance on each of them. If you have leftover money, put the extra on the card with the highest interest rate. If you've stopped using your cards, you'll start seeing the balances slowly start to fall.

Lower interest rates will speed up the process

But we're not done yet. Getting the payments up to 3% is just the start. We actually want to get lower interest rates. Getting the rates down to 10-15% will speed up the repayment process and get you out of debt earlier.

After about 6 months of steadily declining balances, one or two of the credit card companies will start sending you letters offering low rates on balance transfers. They're not doing this out of the goodness of their corporate hearts. And they're not rewarding you for getting your finances under control. By reducing your balances, their profits from you are dropping. So, to drive your balance back up, they offer you a short-term reduction in interest rates if you transfer a balance from another card.

Read the fine print carefully! Many will offer you 9% or 7% (or even 0%) but only on the transferred amount, and only for 6 months. The existing balance you have is still being dinged at the previous rate, and, when the special rate period ends, the amount remaining on the transferred balance shoots up to the full rate too. Money that you pay them will go first to the transferred balance (since they're not making any money on it during the special offer period). Your existing balance remains unpaid. And you're paying the full interest on it. Like I said, they're not doing it to reward you, or because they like you. They're doing it to maximize the amount of interest they can extract out of you.

That's not to say that these special transfer offers are all bad. Occasionally, you can get a credit card company to scrap the special rate period, and offer a permanent lower rate, either on the transferred balance, or the whole debt. Generally (and there are exceptions), these are offers that you want to consider taking. Moving $2000 from a card that's charging you 21% to a card that is now only charging you 15% (or less) for the entire balance will enable you to pay down your credit card debt faster. Pretty soon, the other two cards will make offers of even lower rates for your entire balance. You've now got the credit card companies competing for your business. Be careful, though, to pick and choose the offers you take. Again, read the fine print and run the numbers through the different options available to you. Also, don't keep switching from one card to another too frequently. That actually shows up on your credit reports and can damage your credit rating.

An easy way to lower your interest rates

Another way that you can get lower interest rates on your cards is to write the companies after you've paid down the balances by about 20% or so. In the letters, state that you're following a strict budget, and that you've been able to reduce your debt by 20% (or whatever). Then tell them, once you've paid them all off in full, that you'll be cancelling two of the cards. The one company that will have your business when the time comes will be the one that offers you the best interest rate now. You can even do this over the phone. Many of the customer reps that man the phones are authorized to offer much lower rates to customers who have significantly improved their payment history (and balances). All you have to do is ask.

You don't need to pay a company hundreds of dollars to negotiate a lower rate or a reduction in the balance. Just follow the common sense advice that you've just read, and the companies will fall all over themselves to offer you lower rates. You could have your credit card debt paid in full -- all by yourself -- in 3 years or less.

Congratulations for taking the first step to a brighter financial future.