How to Lower your Interest Rates

Interest rate is defined as the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. Sometimes interest rates are so high that the amount you pay mostly covers the interest payments. Please know that you can work with your creditors and reduce their rates.

Before you begin the process, you need to have a sincere desire to be debt-free, and you should be doing everything you can to make as many payments as possible. Remember, that you owe this money, and you are looking to negotiate what you owe.

The premise of the negotiation is that financial institutions are willing to take a lower payment in lieu of sending the balance to a collection agency. The sale of your balance to a collection agency usually results in a 50% loss for the institutions. So, they are ready to work with you, if you show them that you are willing to work with them.

Step 1:

Pull a credit report and look at all the debt that is shown on it. If there is anything on it that you do not owe, contact Mayanah Financial Coaching immediately.

Step 2:

Gather all your credit card/store card statements and understand the minimum payment, balance amount and interest rates. 

Step 3:

Make a budget and have an idea of how much you can pay every month.

Now, it’s time to call the financial institution and have your month payment/interest rates reduced. Your attitude is very important as you are going to press on until you get what you want. You will most assuredly not take NO for an answer during the first time. However, you need to be cool, calm and collected. Raising your voice or sounding agitated will only backfire on you.

Remember that you owe the money and the financial institution wants your money desperately. You are trying to negotiate with a big bank. You may think it is intimidating, but actually it is not. 

The conversation should look like these for two separate scenarios:

Scenario 1: Trying to reduce interest rates and monthly payment.

You: I was looking over my credit card statement and noticed that I am paying more than other credit card companies. Is there any way you can reduce it?

Company: I am sorry we cannot do it any better. You know, we do not set the rates – it is done at the corporate level.

You: Ok. I am considering a balance transfer as I have received a 0% interest card. I know it will reduce my payment a lot. I hate to switch from you. But, it looks like I have no other option…Is this the best you can do?

Company: We would love to continue having you as a client. I think we can reduce a little bit.

After they give their offer – follow up with:

You: That is not enough and nowhere close to 0%. May I talk to your manager?

(Repeat the whole thing again. Worst case scenario is to pull some Customer Service VP number from the internet and call them. Chances are you will never get them. But, it will get forwarded to the right group within the company)

Scenario 2: Trying to reduce balance amount

You: I was looking over my credit card statement and noticed that I still have a huge balance left. I am going through a rough patch and am planning on skipping the payment. Is there any way we can reduce the balance and put me in a different plan?

Company: I am sorry we cannot do it. You know that you owe this money and delinquency will destroy your credit score. 

You: Well, I know that. But, that is not a choice at this stage. If I become delinquent, then it will go to a collection agency where the balance will be reduced by 50%.  So, I may be able to negotiate with the collection agency. 

Company: Let me see what we can do.

After they give their offer – follow up with:

You: That is not enough as it will still make my payment difficult. May I talk to your manager?

(Repeat the whole thing again. Again, worst case scenario is to pull some Customer Service VP number from the internet and call them. Chances are you will never get them. But, it will get forwarded to the right group within the company)

At any point, feel free to contact Mayanah Financial Coaching. We are here to help you!!!

Balance Transfer - Pros, Cons and Recommended Terms

If you are an ordinary citizen, we are confident that you receive at least 2 letters per week offering you a 0% balance transfer for a certain number of months. We all wonder whether it would be a good choice or if there would be a catch somewhere. Well, it can be good and bad depending on how you deal with it.

So what is a balance transfer?

A balance transfer is the transfer of balance(whole/part) in one account to another account which is usually of another financial institution. The term is most commonly used when describing a credit card balance transfer. It comes with a balance transfer fee of usually 3-5% and as an incentive, the new institution will offer you a 0% interest rate for 12-24 months depending on your debt-to-income ratio, credit score, and a variety of other factors. These institutions may or may not charge an annual fee, which we highly recommend to not opt for.

Recommended Terms:

• 0% for at least 14 months
• 3% balance transfer fee
• No annual fees
• No pre-payment penalty

Pros of a Balance Transfer:

1) Save money : By reducing high interest rates, interest accrued on the balance every month can be saved and can be applied to other debt.

2) Ability to negotiate the terms : New institutions in their attempt to get your business will be open to negotiations of credit terms like grace period and late fees charges.

3) Consolidation of credit card debt : This is beneficial if you have multiple small credit card balances with high interest rates. This is usually perfect for store credit cards.

4) Potential credit score increase : The simple transfer of debt will not cause the increase. However, lower utilization of available debt may help increase your credit score.

Cons of a Balance Transfer:

1) Balance transfer fees : All transfers come with at least 3% of fees which will be added to your balance.

2) 0% rate is short-lived : The 0% rate is not for ever and after the stipulated period it goes up to 20-25%. Hence the transferred amount must be paid off on time.

3) Add to your debt : If you are not disciplined, chances are you will add to your debt due to the available credit.

4) Potential credit score decrease : Though occasional balance transfers will help, too many will backfire as it increases the number of hard inquiries and frequent opening of new credit.

To summarize, just like any other financial tool, balance transferring has its own pros and cons. If you exercise it correctly, you would stand to benefit from it. We recommend the services of a financial coach to analyze your situation and provide you with the right recommendations.