Save $756 With One Phone Call

Going on a spending spree can be a lot of fun. But long after the thrill is gone from a new outfit or electronic gadget, your credit card company will still be positively giddy. Lenders know that they'll still be reaping the rewards of your spending bender for months or even years from now.

Many people just never get around to paying off their credit card balances in full. One survey, for instance, showed that nearly half of all consumers were still paying off holiday shopping debt -- not from the past year, but from the year before that.

The damage may already be done, but you can mitigate the lingering effects by (1) reducing the swelling interest rates you're charged on your balances and (2) devoting every extra dollar to undoing your retail wrongs.

But there's no time to waste. Your mantra until you pay it off: Debt-free, ASAP. (Repeat with fist-pumping whenever the mood strikes.)

Interest-rate attack plan
If you're a good customer -- meaning you haven't had any late payments or other blunders in the past nine to 12 months -- then you, my friend, may have some leverage with your lender.

Don't be shy: Call customer service and ask for a lower interest rate, particularly if yours is higher than 14%. Seriously, ask. Lenders are very willing to talk turkey if that means keeping a customer from moving a balance over to a competitor's card.

Exactly how much are those few uncomfortable moments worth to your bottom line? If you devote $100 a month to pay off a $1,000 credit card balance at 18% interest and put no additional charges on the card, it'll cost you $92 in interest over roughly one year. Cut that interest rate to 6%, and you'll fork over just $28 during the same period.

On a $3,000 balance, the interest-rate fallout is even more pronounced. The cardholder whose balances are subject to a 6% interest rate will pay $259 in interest (while paying off the entire balance) versus the spender who is stuck with an 18% APR and forced to pay $1,015 -- a $756 difference -- for the privilege of borrowing. (Plug in your own numbers on our online calculators to see how much moola you can reclaim with your phone request.)

More than half of the people who call their credit card customer-service departments are successful in reducing their annual interest rates by an average of one-third.

If your debt can be paid off in a matter of months, even better -- that means you can settle for a short-term rate reduction. You want to shoot for something in the 6% to 11% range. But don't be discouraged if you don't get it, because you have another trick up your sleeve ...

The debt-transfer two-step
If your balances will take a while longer to exorcise, there are a lot of offers out there for 0% to 5% balance-transfer deals. (Check out for current balance-transfer offers.) Moving your balance from your current card to a new lower-rate one is as easy as mailing a balance-transfer check with your statement.

Sounds easy, right? Well, there are a lot of "gotchas" in the balance-transfer process, including fees, transfer limits, and other things that can turn a great deal into an awful one with just one misstep.

Mostly, though, you want to make sure you don't inadvertently sabotage that great balance-transfer deal. That means (lecture alert!):

  • Put no new charges on the card. Those charges -- usually subject to a higher interest rate -- will be the last ones your payments will touch.
  • Pay all bills on time. Lenders regularly check your credit report.
  • Tattoo the deal's end date onto your forehead.
  • Give the bank no reason whatsoever to change the terms of your contract.

I also caution against opening new lines of credit if you plan to get a loan (car, mortgage, refinance) in the next six months or so. Opening new lines of credit can raise red flags on your credit report.

Follow these rules of debt management, and you won't be stuck still paying off the ghosts of holidays past a decade from now.

Dayana Yochim's holiday overindulgences from this past year have thankfully been paid in full. She spends every waking hour scouring the consumer-finance world looking for money-saving shortcuts and spotting "gotchas" for Fool readers. The Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (41)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2008, at 12:54 PM, MoneyMomMA2332 wrote:

    I was surprised to learn that when I make a credit-card payment, they pay off my lowest APRs first, leaving the highest ones to accrue more interest for them. I found a credit-card comparison engine called <a href="">Card Hub</a> that allowed me to plug in my credit information *and* what I wanted in a new card (0% balance transfer APR for as long as possible). Found a great card with 0% BT *and* cash-back rewards, and now it's bye-bye, high APR, hello, saving money!

  • Report this Comment On October 04, 2008, at 6:34 AM, JoshUNC wrote:

    Thank you for this helpful information! Before reading this I was in the process of doing as stated here as far as reducing credit card debt. I have succeed at reducing my high rates of 18-23% to about 6-4%. BUT my main point is READ the fine print on transfers and fees that go along with them.

  • Report this Comment On October 11, 2008, at 5:54 PM, journeywithme wrote:

    This is great information. Thank you for sharing this.

    Be well.

  • Report this Comment On December 31, 2008, at 10:33 AM, tbyrd58 wrote:

    Here's a new one not covered in the terms and conditions of the balance transfers. Chase has come up with a new underhanded trick. The customers who were extended promotional rates are having there minimum payments increased from 2% to 5% and having a $10 dollar monthly fee added to their account. Consumers with a $400 minimum payment find themselves with a $1,000 minimum payment. Several are reporting on credit card boards that callers complaining were told the increase is because of their promotional interest rates and have received a counter offer of doubling their interest rate but retaining their old minimum payment.

  • Report this Comment On April 05, 2009, at 12:21 AM, Servious wrote:

    I have a recent surprise in my mailbox I thought you all would find interesting: Balance Transfer fees no longer having a cap, and start at 3%. I recently called to find out what some activities was on my account when I was asked an indepth series of questions about household income. I wasn't thinking and I answered them. They ended up giving me 40.00 back in fees that were charged wrong, but 3 days later in the mail, my account terms were changed to now include an increase per transaction of 4%, AND a minimum charge if I use their balance transfer feature.

    Talk about retailiation, and it's the MOTLEY FOOL Card!!!!! I suggest MF change vendors immediately.

  • Report this Comment On April 05, 2009, at 12:58 AM, kamuirei wrote:

    "Talk about retailiation, and it's the MOTLEY FOOL Card!!!!! I suggest MF change vendors immediately. " - Servious


  • Report this Comment On August 20, 2009, at 12:14 PM, deedot wrote:

    Please give me a telephone # for Motley Fool

  • Report this Comment On December 03, 2009, at 7:55 PM, zxtrm1 wrote:

    Serious question: Am considering filing a Chapter13 and just interested on your input on possible pluses and minuses / advice on doing so... (could wipe out 80k+ in equity line of credit since have no equity in home and value is -160k underwater, plus another 40k in credit card debt, so seems quite logical)... other option is attempting to get creditors to 'settle' and accept low upfront payment...

  • Report this Comment On December 04, 2009, at 6:34 PM, Soontobedebtfree wrote:

    Better idea. Save $1000 as an emergency fund. Pay off the credit cards and buy things with cash. Then increase your emergency fund to at least 3 months of take home pay. You'll stop buying stuff you want and buy what you need. Paying cash makes you think before buying.

    Stick to a budget and pay cash! You won't have to worry about a credit rating.

  • Report this Comment On October 05, 2011, at 4:23 PM, Joelboldman wrote:

    This is one call all of us should make.

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