Credit Card

1. Debate the rate. First things first – let’s find out exactly what rate you’re paying on your cards. Is that your Visa card whacking you at an interest rate of 19.8%? And that department store charge card – are they really charging you 29%? Yes, those high rates are not uncommon, and chances are probably pretty good that whatever you are being charged, you are probably paying at rates that are much too high.

Considering that banks are now paying savers from 3 to 4 % interest on savings accounts and certificates of deposits, then turning around and charging consumers 3-5 times that amount to borrow money, you’d think they have some room to give you a lower rate. They do – it’s just up to you to negotiate to receive it.

Here’s how: Contact each of your creditors directly and see if they will reduce the rate on past purchases to a more reasonable level. Let’s say you get them to agree on 12%. If they accept the new rate, you’ll have automatically shortened the time it takes to pay off your debt without increasing the amount you pay monthly. Our advice would be to increase your monthly payment even more to get yourself out of debt sooner.

2. Go shopping – for another card. What if the creditor won’t negotiate a lower rate? Then be a good consumer and shop for another card. Your mailbox is probably stuffed with new credit card offers. (The Internet is also a great place to shop for credit cards.) Find one that will give you a low, fixed interest rate - somewhere between 6 and 12% - preferably with a 0% transfer rate on your balance. Once your balances have been transferred, cancel the old credit cards and snip them to itty-bitty pieces with a scissors. You simply don’t need the temptation of an open line of credit.

3. How about a loan? There are basically two types of debt consolidation loans – consumer and home equity loans. Anyone can get a consumer loan, but you obviously need a house for the second loan. These types of loans only work if the interest rate you pay is low. Be careful of hidden fees and charges and make sure you fully understand what your new interest rate will be.

If you own a home and you’ve built up some value [equity] in your home, you’ll want to opt for the home equity loan. Rates tend to be lower, and the interest you pay may be tax deductible. Make sure that you can afford the monthly payments of both a home equity loan and a mortgage before you commit to this option.

Debt is no picnic, and it goes hand-in-hand with high interest rates. It’s going to take some of the tactics we mentioned earlier, along with a good dose of discipline, to pay down your debt. But if you followed that two-pronged attack, you’ll soon find yourself debt free and in healthy financial shape. Read more