Did you know that much of your debt consists of interest? This is especially true if you’ve carried balances for a long time.
For example, if you have a $10,000 balance at 20%, it will take you 60 months to pay off the debt with a $264 monthly payment and a total of $5,896 paid in interest. Your $10,000 would cost you $15,896, which is made up of 37.09% interest charges.
Reducing your interest rates can help you save money and pay your debt off faster.
How to Reduce Interest Rates
If you’re in debt, it’s easy to get overwhelmed. You probably think you’re stuck with whatever interest rates you have right now.
You’re not. You have options. If you have bad credit, your options are more limited than those with good credit, but exhausting all options is key.
Apply for a Balance Transfer
If you have good credit, apply for a 0% balance transfer. You’ll need a 700+ credit score to get this, so it has a limited audience. If you are lucky enough to get this deal, make high enough payments so you pay the debt off in full during the promotional period. Balance transfer offers don’t last forever.
Negotiate for a Lower Rate
You’d be surprised at how many credit card companies will give you a lower rate just for asking. This only works if you have a good payment history with them, though. Even if you only made the minimum payments, if they were on time, you may get lucky enough to get a lower rate.
Apply for a Lower Interest Rate Credit Card
If you don’t qualify for a 0% APR balance transfer card, try to get a lower interest rate credit card. You may find you are eligible for a card with a rate lower than you pay now. Even a rate a few points lower than what you pay now can save you money and pay your debt down faster.
Get Debt Management Help
Here’s an example:
Our client had $42,539 in debt. We were able to get their interest rates down to 0%, making the payment $850 a month. Without our help, our client was paying 20% interest and with a fixed payment of $850 a month, it would have taken him 109 months to pay it off with $49,383.15 in interest paid.
Paying the debt on his own, our client would have paid $92,000, but with our help, he paid around $50,000, or $42,000 savings.
Reducing your interest rates is the best way to tackle your debt. Rather than focusing on how much money you can throw at the debt, look at the interest rates first. Figure out a way to get your interest rates as close to 0% as possible for the most savings.
If you need help getting your credit card debt under control, contact our credit counsellors today for a free consultation.