NEW YORK (MONEY Magazine) -
In the low-rate environment of the past few years, a lot of people chose to pay down high-rate credit card debt by tapping money from their homes, either by refinancing or taking out a home equity line of credit.
In theory, it sounds really good: You pull money out of your home that you agree to pay back over 30 years at a very attractive rate. The interest is deductible, and your personal balance sheet and cash flow improve dramatically.
But many people just charge their credit cards right back up again, leaving them more strapped than before.
And because they've turned an unsecured debt (those credit-card bills) into secured debt (a bigger mortgage or home-equity loan), they've put their homes on the line.
Unless your situation is dire, there are better ways to bring down your monthly interest payments to Visa or MasterCard.
Gather your ammunition
To save money on interest, you can reduce the rates on your current cards or transfer your balances to cheaper cards.
But to do either, you need to know where you stand.
Start by listing the APR (annual percentage rate, or interest rate) you're paying on each of your cards. Note whether those rates are fixed or variable.
Next, gather all the pre-approved offers you've received.
Then figure out how valuable a customer you've been to your card issuer: How long you have had each card? How much do you charge monthly or annually? How much interest does the issuer earn each year on your business? And do you pay on time?
Lastly, find out your credit score. If it's above 720, you should be able to borrow at the best rates. So use that to support your case that you deserve a better deal.
(You can get your credit reports and your scores at MyFico.com; $12.95 for one or $38.95 for the reports and scores from all three reporting agencies.)
When you've got everything together, call your card's toll-free customer service number. Say you're considering an offer from another company and ask for a lower rate.
If the rep says she's not authorized to do that, be persistent. If she says she can't do anything because your credit card is at a fixed interest rate, say, "A fixed interest rate only means that my rate doesn't vary with fluctuations in the prime rate. In fact, the bank can raise it on my account at any time by just giving me 15 days' written notice. And the bank can -- if it chooses -- lower the rate today."
If that doesn't work, ask for the supervisor. (And even if you get a substantial cut from the first person, speak to a supervisor anyway to see if you can do any better.)
If you still can't catch a break, threaten to close your account. Remember, though -- you don't want to close your account. It won't do good things to your credit score. But if the bank believes that you're willing to close your account -- and you've been a profitable customer -- you stand a better chance of getting what you want. And if the rep calls your bluff? Say, "I guess I'll have to think about it."
Always keep a record of whom you spoke to, when and what was said. If the rate cut or fee waiver that you were promised doesn't materialize, you'll need a paper trail.
If all else fails, transfer your balance
If you're not successful in reducing your interest rate, it's time to transfer your balance.
There are several places to find good offers: your mailbox (the average person gets five credit-card solicitations a month) and Web sites like Bankrate.com, CardWeb.com and Money.com.
In choosing the best offer, consider:
- The rate: Balance-transfer offers often come with low teaser rates for the first six or 12 months. But the rate after the teaser expires is just as important.
- The fine print. Balance transfers often incur different interest rates than new purchases. Cash advances sometimes have a third rate. It's important to understand that "pre-approved" may not mean you'll get the rate in large print.
- The fees. Some issuers charge a balance-transfer fee.
For a ballpark estimate of your savings, multiply your minimum payment by your old rate, then by your new one. Calculate the difference.
FOUND MONEY: $______/MONTH