In my previous article I went over some low hanging fruit items including ask for a lower credit card rate on your current card. That is an OK kind of tip but, it was thin. So in order to thicken up the help on this I wanted to break this down a little deeper. If you know a little bit about the credit card company and how they make money you can be better prepared when you ask for a new rate.
The Credit Card Company’s Game:
The credit card company makes money by loaning you money and betting you are not going to pay it back before interest for the loan kicks in. This may seem obvious. (Usually at the end of a 25 day payment period.) They hope to hit you with late fees, cash advance fees and any other fee they can think up. They get real creative. If you are late you get a fee and sometimes the interest rate increases. This in turn effects your credit rating in a negative way. Then it can snowball to effect other credit cards and even car insurance rates.
Look at the rule of 72 and figure how long it takes the credit card company to double it’s money on you. Not paying off the balance puts you in the hole with the clock ticking. By lowering the interest rate on your credit card the credit card company looses money. The credit card company is not stupid; they may lose money for the short term but, they will insure you are a customer for a longer period. If you move your balance they get zero dollars.
Rules Of Their Game:
- The credit card companies don’t play against you they play against each other to win your future earnings. The customers are their investment.
- Time is their tool. The longer you stay using their card the more they can win from you and beat their competitors.
- One in the hand is worth two in the bush; it is easier and cheaper to keep a customer than get a new one.
- Fees are a great way a credit card company to out perform another in a per customer basis. By adding on fees the rule of 72 is accelerated.
- Steal customers when ever possible away from the competition; it is a double win for the credit card company. The competitor loses future earnings while they gain future earnings.
WAVE-B Credit Card Game:
Start where you are with consumer credit card debt and eliminate it to gain wealth. This is the game within the game. The goal is to have the credit card company pay you.
Strategy of the WAVE-B Credit Card Game:
Ask for a lower rate:
The cost to obtain a new credit card customer is about $80 So if a credit card company looses you as a customer it cost them money. This means asking for a new rate is to your advantage. Prepare to talk to the representative on the phone know they need to handle as many calls as possible in the shortest amount of time. Have offers from junk mail in had, look up the offers on bankrate.com and creditcards.com, etc. Another factor in lowering your rate by asking is most people don’t ask so the credit card companies have the room to accept the loss over many customers. According to an article by Michelle Crouch of creditcards.com 80% of the people don’t even ask to get lower rates. The same article noted of the remaining 20% who asked 75% received a lower rate (15% overall). This means you have to ask; you can not get a hit if you don’t get up to bat or in other words 100% of the people who didn’t ask for a reduction of rate did not receive a lower rate. (Also keep in mind you could have a late fee waived by asking at about the same rate according to the same article.)
Call the rep and ask what is the best rate they can give you. What ever they say ask them again is that the best they can do? Make sure there is no annual fee included with a new card if they offer you one. (Remember they are trying to make money from you; and out perform their competitors) Use the rates of your junk mail, bankrate.com, creditcards.com, etc. to negotiate if needed. Be polite and ask for the supervisor if you feel like you are getting no where. Whatever rate you get after the call this is the rate to start the next step.
Leverage the rate from the starting card:
After obtaining the best rate with the card you started with look for a competitor. The competitors card should have a equal or better rate than the one you have. Use the tool magnifymoney.com This site has a comparison tool that can help you find a lower rate. Use the tool and find the top two credit card companies. It takes in account your credit rating so have that handy. The great thing about the tool is it shows you how much money you will save per month with each card. The categories for the tool are: Balance Transfers, Cash Back, 0% Interest, Low Interest, & Secure Credit.
There are a couple of different scenarios when you are dealing with credit cards. Having a look at what one your in can help decide if you are using the correct one.
Having A Balance
If you hold a balance look for a balance transfer. Look to see if you can grab introductory offers that have zero to low interest. (keep in mind the offers may have a transfer fee; factor that in to your comparison of cards) If you will still hold a balance before the introductory offer you have to repeat the process. Keep motivated by keeping in mind when you pay less interest more money can be directed towards the principle in this way you could pay more towards the principle of the balance.
Paying Full Each Month
If you pay in full each month you would look for the best cash back card. In this way you can gain money from the credit card. A danger of this is to be late and kill any gain.
Paying Ahead Each Month
Figure out your monthly usage and pay the credit card before you purchase. This is turning the credit card into a debit card. It may take some time to pay extra a full month’s usage but do what you can. Once the pay ahead surplus is above the minimum payment the late fee risk is then eliminated. When you are a full month ahead you have a one month built in emergency fund for your usage.
- Evaluate what credit card you have; ask to have a rate reduction
- Look for a better card to do business with; lower interest rate / lower annual fee (zero is ideal)
- Maximize the return on the use of the credit card you use
- Eliminate carrying debt then pay in advance by one month
- Use a cash back and/or rewards card
- Isolate saved cash and put it in either a savings account or an investment
- Look for better offers (at least once a year)
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