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Five Things Credit Card Companies Don’t Want You to Know

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Five Things Credit Card Companies Don’t Want You to Know

You don’t have to look too far to read about someone getting into big trouble with credit cards.  In fact, you may just need to look at your latest statement to see someone who needs help getting out of credit card debt.  We’ve prepared some tips to help you, or someone you know, start climbing out of the hole they’ve dug.

1.  Little dollars make a big difference. Credit card companies earn money from consumers through interest charges and fees.  The higher the balance you have, the more you will pay in interest.  If you go over your limit, make late payments, or skip payments, there will be fees charged to your account.  This lets the credit card company double-dip; unpaid fees add to your balance, which increases the amount of interest you pay each month.

Most people only make the minimum payment each month.  While this protects their credit rating by keeping them in good standing with the credit card company, it does very little to reduce their debt.  Paying any extra amount toward your balance will drastically reduce the time and costs of paying down your debts.  If you have a $10,000 balance on a credit card at an 18% APR, paying only the minimum payment every month will take 26 years and $24,234 to pay off.  Adding $10 extra to each payment will save you nearly 9 years of payments and almost $3,000 in total interest.  If you up your payment by $25 each month, you will pay off your balance in a little less than 13 years and save nearly $6,000 in total interest compared to the minimum payment.

2.  You don’t have to wait for your bill to arrive before you make a payment. Credit card companies calculate the interest you owe based on your average daily balance.  By paying ahead on your balance, you reduce your balance and therefore the amount of interest you owe each month.  If you make a major purchase, and you plan on making a larger credit card payment which won’t pay off the balance, don’t wait until your bill arrives.  Use your credit card company’s online payment service to make your bigger payment early in the month.  This way you pay down more principal and pay less in interest charges.

3.  Everything is negotiable. Your interest rate, minimum payment, payment due date, fee and just about everything else can be subject to negotiation with the credit card company.  You won’t always get your way, and you’ll need to have a good reason for what you are asking for, but you will be surprised at how flexible they can be.  This is particularly true if you are a good customer: someone who makes their payments on time and uses their card regularly.  As the saying goes, it never hurts to ask.

4.  There are other options besides paying off your balance in full. We all know it is always best to pay off your credit card balance in full every month.   However, if you are in big trouble with credit card debt, and you don’t feel you can repay what is owed, you do have options besides defaulting on all that debt.  You can ask to settle the debt with the credit card company for some amount less than the total of what is owed.  This satisfies your obligation to them, and eliminates a costly burden on your end.  However, this is not without its downside.  Settling your debt is like a “mini-default”; it’s not as bad as not paying anything, but it’s not the same as paying everything either.  You will still take a negative hit on your credit report, and your ability to be approved for future credit cards or higher credit limits may be limited.

 5.  The consumer credit industry is extremely competitive, and that can be used to your advantage. There are tens of thousands of credit card options on the market today for most consumers with different rates and benefits.  Credit card companies only make money if they are the ones collecting interest and fees.  If you take your business elsewhere, that costs them money.  This is why companies are willing to negotiate, but if you still aren’t happy with your arrangement, go somewhere else.  Many companies offer low introductory rates on balance transfers, so your monthly payments can pay off your debt faster with the new card.  You have the most options, and are the most attractive customer, if you make regular payments and have a good credit score.  Always keep an eye out for better offers; if your current company can’t match the deal, you can always make the switch. 

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