One of the great misperceptions about credit card debt is that the cards themselves are bad. The truth is, they're really not. Rather, it's the effect of double-digit interest rates that make them so toxic to our personal finances. The exponential growth of the account balance quickly causes purchases we thought we'd easily pay off over a few months to grow into something that seems like it will take years to knock out. (For your future well-being, learn to talk yourself out of buying things you can't afford in Nine Reasons To Say "No" To Credit.)
Luckily, ridiculous interest rates don't have to be part of your credit-card experience. Like many things in life, they are negotiable for those who know who to talk to and what strings to pull. If you can do a little bit of work to get inside your credit card company's head and are willing to spend 15-20 minutes on the phone, there's at least a 50% chance you can save yourself a few thousand dollars in the next 12 months. (For more ideas on how to reduce your debt load, read Expert Tips For Cutting Credit Card Debt.)
Why Should You Try To Get Your Rate Lowered?
You're probably reading this article because you've decided to step up and do battle with your credit card debt. With this in mind, it's crucial to realize that even a small cut in your credit card's annual percentage rate (APR) can shorten the amount of time it takes for you to become debt free.
Consider a credit card with a $10,000 balance that is being charged 25% annually. All else being equal, that credit card balance will cost you $2,500 in interest over the coming year. (Paying these rates can impact your disposable income and your investment returns – learn more in Understanding Credit Card Interest.)
If you could get your interest rate on that credit card lowered from 25% to 15%, this would lead to an annual savings of $1,000, which you could put toward paying down your debt. A lower interest rate can make a huge difference in how long it takes to become debt free.
While this prospect may sound too good to be true, it isn't. The people who can get the right person at the credit card company on the phone often receive a six- to 12-month reduction in APR. Even better, there is no risk in asking. Unlike some other balance-reduction techniques like debt settlement, simply requesting a reduction in your APR does not show up on your credit report, nor does it require hiring a professional to help. (If you're in over your head, check out A Lifeline For Those Drowning In Debt.)
Understanding Your Credit Card Company
When you owe a large sum of money to a credit card company, it is easy to begin to fear talking to them. Perhaps people think they're going to get yelled at or shamed about their situation. The reality is that credit card companies are in business to make a profit, and their biggest profit is made from charging interest to people with unpaid balances. The bigger the balance, the more money the credit card company is able to make. In other words, if you are carrying a large balance, you are one of their best customers. The credit card company loves you and wants you to stick around and keep paying interest. (Find out why closing your credit card while carrying a balance is a bad idea in Should You Close Your Credit Card?)
Credit card companies don't want to lose you or your balance, especially if you are paying a rate that's double or triple the historical rate of return in the stock market. In fact, many credit card companies will go to great lengths to keep you happy and keep you spending, lest they go out of business. This fact is your most important piece of leverage when it comes to getting your APR lowered.
Making the Pitch for a Lower Rate
The process to getting your credit-card rate lowered only involves three steps, shouldn't take more than 15-20 minutes and doesn't require any advanced negotiating skills. It just takes getting the right information in your hands and the right person on the phone.
Step 1: Find a Lower Rate Elsewhere
First, you need to collect some competitive offers on your interest rate. In other words, you need to show your credit card company that you're serious about taking your balance, its source of profit, elsewhere.
You can probably collect a stack of competitive offers simply by letting your junk mail pile up for a week. In that stack, you'll find plenty of balance-transfer offers from other credit card companies offering temporarily lowered rates for transferring your balance. You can also spend a few minutes surfing large credit card companies' websites for their balance-transfer rates. Ideally, you want to find three to four offers for a rate around 10% or less for a 12-month period.
Step 2: Ask the Right Person
Next, grab your credit card, flip it over, and call the customer service number on the back. Then, keep hitting zero or whatever it takes to talk to a live person. Tell the representative that you've received numerous offers for a much lower interest rate from other credit card companies, but that you don't want to have to move your balance to another company.
If the customer service representative says that a lower rate isn't possible, ask to speak to his or her supervisor. If you are refused, ask for the representative's full name and customer service identification number - this usually places a little fear in the person, and he or she will want to hand you off as soon as possible.
When you get the customer service manager, which is probably the person you've wanted to talk to from the start, you'll again want to make your pitch. Be even sweeter this time. Be sure to tell the agent how much you've enjoyed having your account with the company and how much you'd like to keep it there, but also how much money you could be saving elsewhere. Then ask if he or she could save you the hassle of transferring by matching the other companies' interest rates.
There's at least a 50% chance, if not better, that your request will be granted. Even if your company won't match the competitor's rate, it may still agree to significantly lower your rate. If your original rate was 20% or less and the credit card company is willing to lower it by 5% or more, take the offer. If your rate is more than 20%, you should hold out for a reduction of at least 10%.
After Your Credit Card Company Says Yes
If you are able to get your rate lowered, it's time to supercharge your journey to eliminate debt. First, try to get the credit card company's agreement to lower your rate, as well as the related fine print, in writing. Plenty of people get a promise of some kind from a customer service rep only to discover that the rates have not been changed. Additionally, a credit card company's agreement to lower rates can be loaded with conditions that will raise your rate as high or even higher than before if you fail to pay your bill on time or keep your balance under the credit limit. (If a credit card company changes its terms, you could pay a steep price. Find out how to stay informed in Watch Out For Changes In Credit Card Agreements.)
Second, make sure the money you save on interest goes toward reducing your credit card or other debt. This isn't the time to go on a shopping spree or blow off some steam in Las Vegas with the extra money you're saving. Continue making the same size of payments you were making before your rate was reduced. (Learn five simple steps to manage impulsive spending in Get Emotional Spending Under Control.)
Words of Wisdom
Remember that in the end, your balance is a valuable asset to a credit card company. Without you, the company loses the ability to earn a very attractive rate of return. By expressing, in a non-confrontational but direct manner, that you'd like the company's help to keep you as a customer, there's a good chance it will grant your request and lower your rate.
Because there's nothing to lose but a little bit of your time, everyone with a substantial credit card balance should give this technique a shot.