So, you have your debt reduction strategy in place, and you are ready to ramp up your debt reduction with some advanced steps? Awesome. (If you do not have a solid debt reduction strategy, check this post out.)
1. Call your credit card companies and ask them to lower you interest rates. In many cases, your current company will bump your rates down, especially if you have been a good customer. Don’t give up! Call, call, call, until you are certain that your company is not going to hook you up. I suggest calling once a week for a month, always asking for a manager or supervisor. Still no luck?
2. “Surf” your balance from a higher rate card to a lower rate card. If your current card company won’t work with you, there are other companies which probably will. How does this work? Find a decent offer from a card company. (You probably get a few zero-interest or low-interest card offer in your mail every week…) What to look for? No balance transfer fee and a decent period of time before your higher interest rate kicks in. Remember, never, ever sign up for a card offer that you don’t completely understand. It is better to pay higher interest (for a short period of time) than it is to get taken by a card company offer that you don’t understand.
3. Maximize the interest on your savings! You need a decent savings account which pays a decent amount of interest on your money. I use ING Direct (
Click here for information about ING Direct Referrals…) You should have a small emergency fund in savings (around 1000 dollars) at all times, to keep from having to go further into debt if (when) you have a financial emergency. AND, you really, really want to maximize the amount of interest you are earning on those savings. Why? So you will have MORE money at the end of the month to send towards your debt reduction!
4. Check those debt interest rates. Are they higher or lower than the rate that you are making in your savings account? If they are LOWER, then it pays to keep your money in savings until right before a bill is due, sending in your payment say 5 days before the due date. (ALWAYS be on time… one mess up and you could ruin your entire plan with penalties and rate hikes!) If they are HIGHER, then send your payments in as soon as you can! Why? Because most cards charge interest based on your average daily balance, and the quicker a payment reaches your card company, the quicker your balance is reduced. (Card companies are not stupid, and the methods that the use to charge interest vary from card to card. If you are in doubt, send your debt payments in as soon as possible, so that you will have peace of mind, knowing that you have reduced your over all balance.)
5. I know what you are thinking. NCN, if I am making a higher rate of return on my money than I am being charged by my credit company, WHY should I be in a hurry to pay off my debt.
Reason 1: 2 + 2 = 5 Sometimes, the math does not matter. There is an “emotional” component involved in debt freedom which cannot be quantified. Trust me
Reason 2: ALL interest rates are variable, even fixed, settled, rates. Why? Banks get bought and sold, recessions happen, payments get lost in the mail, etc. etc. Never under estimate the reality that your debts could be bought or sold, that your card agreement could be changed, or that something else could “happen” which could upset your delicate financial footing.
Reason 3: You want to get out of debt. Prolonging your debt reduction for just a few dollars in interest is ridiculous. Once you have experienced debt freedom, you will know what I am talking about. Do not play games with credit companies. They own those big fancy buildings for a reason!! They know how to play the game.
There are tons of personal finance folks out there who have no problem with carrying debt and debt balances. I am not one of them (check out the title of the blog!) If you want to get out of debt, you can!