January 5, 1999

How To Save $7 Billion

by Dayana Yochim (TMF School)

Americans will pay more than $7 billion in interest from holiday season credit card spending, according to credit-card tracker CardWeb. Here is one thing that you can do today -- right now! -- to save yourself the anguish of paying interest for 63 years on that selection of toys that your child has somehow already grown tired of by now: Renegotiate your interest rate.

That's right, like hookah pipes at a Mediterranean bazaar, the hour by which your teenager has to return home, or whether the President should be censured, impeached or merely called a "very, very bad boy," the interest rate from your First Bank of Firstness lender is entirely negotiable. And your credit card lender makes it easy -- there's a toll-free number right on the back of your card, and someone manning a phone bank who will be happy to chat with you after keeping you on hold for about five minutes.

Are you eligible to renegotiate? If you carry a balance on your credit card, you betcha! You're a very valued paying customer -- not one of those freeloading Fools who uses a credit card for a free short-term loan by paying the balance in full every month. Heck, even if you are one of those freeloading Fools, if you pay an annual fee, that's up for negotiation, too. (If you're a freeloading Fool with a no-fee credit card, you can call your lender and renegotiate your interest rate for sport on a slow day at the office.)

What's reasonable to expect? If your current interest rate is in the 16% to 18% range (the nation's average), 12% is a fine number to shoot for. We know of Fools who have managed to talk their lenders down to an 8.9% or even 6.9% interest rate. Many lenders carry the stipulation that this "special low interest rate" is available to you only as long as you make your payments on time. One late payment and it's back up to 2,463%. Sometimes lenders will offer a low rate that is good for balance transfers only. That means that you will be charged a higher interest rate on new purchases posted to the card. Be a good Fool and pay off the balance you transfer and don't put another dime on the card until you do so.

What to say. To help you out, we had a few Fools at HQ call their lenders and renegotiate their interest rates. Here's the conversation one had with his lender:

Fool: "I just got this an offer from First United BancUSA Nation's Edge PlatinumGold Choice for a card with a fixed APR of just 9.9%. I've carried your card for eight years. Is there any way you can match this interest rate?"

Operator: "I'm going to have to transfer you to a different department."

Operator 2: "First Bank of Firstness. How can I help you today?"

Fool: "I just got a stack of these incre..."

Operator 2: "I'm going to have to transfer you to a different department."

Operator 3: "Hello." (The sound of computer keys tapping and your payment history being scrutinized.) At this time we can offer you an interest rate of 12.5% as long as you continue to make your payments on time."

Fool: "Can you do any better than that? I get offers every day not just for introductory rates -- but for lower regular interest rates."

Operator 3: "Let me check with my supervisor to see if we have any promotions occurring now. (Sound of somebody putting you on hold while pretending to talk to a supervisor.) Alright, I'm back. Unfortunately we can't do better than 12.5% at this time. We can, however, waive your annual fee."

Fool: "Alright. That sounds fine for now. Go ahead and do that."

What if it doesn't work? If you have a solid track record with your lender you should be able to negotiate a lower lending rate. If you get a dud operator who isn't feeling generous, politely ask to speak to a supervisor. One Fool said she called her card twice to do the entire rate-negotiation dance over again and got completely different results with a different operator. Like any negotiation session, there are no set rules or results.

Another tactic is to remind your lender that he is making money off of you even if you pay off your balance each month. Credit card companies make 3% to 5% from the merchants on every dollar charged. You can use this as leverage to get fees removed and reverse grace period adjustments. When your lender tries to hit you with a $45 annual fee, call and remind them that they got $1250 per year (or whatever the amount was) in merchant fees, which they won't get next year if you cancel your card.

If you're perpetually late with your payments, employ an outrageously pretentious false French accent, or refuse to stop giggling while on the phone with the operator, your lender may prefer to let you walk. So be prepared to follow through with the First Union Banc USA Nation's Edge Choice -- you do receive several of these offers a week, right? Cancel your old card and remember to close the old account and have it noted that it was closed "at the cardholder's request."

What now? Once you've negotiated for a lower interest rate, pay it off, Fool! In our Dig Yourself Out of Debt area we cover 8 Ways to Pay it Back, and scores of readers who have been through the credit card rigamarole offer tips on how to handle credit.

If you have a question about your credit/debt situation, head over to our Credit Card message board where Fools await to answer your every question.