When it comes to credit cards, there's no interest rate David Bach can't lower. Well, almost none.
As an expert guest on Oprah Winfrey's "Debt Diet" series a few years back, Mr. Bach helped a couple with debt on 12 different credit cards lower the rate on all but one of them to 5 per cent or less. "There was one credit card in particular that just wouldn't work with them," he laments.
At the beginning of 2010, credit card debt in Canada amounted to about $78-billion. If you've got credit card debt, you owe it to yourself to try to get a better rate, says Mr. Bach, author of 10 bestselling financial books.
"People will spend more time shopping for a television set than they will for their credit card. And then they'll use their credit card, which has a bad rate, to pay for the television set," Mr. Bach says. "People focus on shopping for things and they don't focus on shopping for their financing. That's the single biggest mistake consumers make."
Before the recession, lowering your rate was pretty easy. Credit card companies were offering low interest rates on balance transfers, and you could just threaten to leave your lender if they didn't match the best deal. When the recession hit, lenders tightened their rules. In recent months, however, credit card companies are offering deals again, giving customers some negotiating power once more.
"Lenders are starting to again be more competitive and consider lowering rates for people to keep the business," Mr. Bach says.
Before you pick up the phone to negotiate a better rate, you need to be an informed customer. Below are a few steps to take:
1. Do some research. Find out how much interest you're paying by looking at your card's annualized percentage rate. It should be listed on your statement on a daily and annual basis.
2. Shop for a lower rate. Go online and see what your credit card company is offering new customers. This will show you the best rate your lender could be offering you.
3. Compare national averages. Credit card issuers tend to have competitive - and similar - interest rates, but they apply different rates to purchases, cash advances and balance transfers. Go to websites like redflagdeals.com and creditcards.ca to find out what deals others are getting. You should also check out the credit card comparison tools at the Financial Consumer Agency of Canada website (fcac-acfc.gc.ca).
4. Know your score. Before you start calling your credit card companies, find out what your credit score is. You can order your credit report by phone, mail, or online from TransUnion or Equifax. Then go to canada.creditcards.com and check the interest rate you should be receiving. If you have a good score (660 or higher) but are not being offered the best interest rate, find out why.
5. Know the risks. When you call your credit card company for a better rate, they will likely pull up your credit report. If your credit history is shaky, you may not be in a position to negotiate a better rate. In fact, Mr. Bach says, some customers have actually had their interest rates increased and spending limits lowered after they called their lenders.
6. Make the call. When you call your credit card company, be persistent and use the information you have gathered. Tell them a competitor is offering a better rate and ask if they will match it. If you get a no from the first person you speak with, ask for a supervisor.
7. Get help if you need it. If you're deep in debt and can't negotiate with your credit card company, see if you can get a loan or line of credit with a lower interest rate and pay off your high-interest cards. If all else fails, ask to enter into a debt management or forbearance plan. Be aware, however, that you will no longer be able to use those credit cards.