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Negotiating Better Terms on Your Credit Card

| August 28, 2018
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Financial planners tend to be very debt averse.  The best advice I can offer regarding consumer debt of any kind is just avoid it in the first place.  Save up for future purchases, pay cash or use debt cards for most purchases, and never use debt to purchase things that you are unable to save up enough money to purchase.  Hey, if you couldn't save enough each month to take that vacation, what makes you think that you will suddenly have enough money every month to make the credit card payments?  

Now that off my chest, let's be real.  Most people DO use credit cards.  In fact, if you have good sound budget discipline and pay the cards off every month, using cards can be convenient, and even provide a little cash back, or other goodies.  But banks are very smart - and they know how to make a buck.  Interest rates are obscenely high, fees for late payments are often imposed when a payment is only a few days overdue, and terms are often changed in the banks favor (probably hoping most customers aren't paying attention).  Still, it's a highly competitive world out there, and banks also realize they may need to occasionally give back a little in order to keep customers.  In other words, it actually is possible (and smart) to negotiate with your credit card issuer.  

I found this article last night on Yahoo Finance which offers concrete suggestions on how to negotiate lower fees, lower interest rates, etc.  It is worth a read.  In fact, I have found that occasionally threatening to leave a card issuer can provide benefits all its own.  I called Chase recently to explain that I wanted to close my card because a competitor was offering a better deal.  The representative transferred me to something like a "customer retention department" where another rep offered me a sizable cash back bonus just for changing my mind.  "Hey, if you still want to close the card after 30 days, you can do so - and you get to keep the cash" he said.  OK!  

It doesn't always work.  I had another card which I said I wanted to close and they just said "OK" and shut the account.  But in that case, I hadn't used the card in a while, so I didn't score very high on their list of "valuable customers"  

Negotiating with credit card companies when you are over your head.  The article also delves into how to best deal with credit card companies when you are having trouble paying your bills.  Obviously if you are in this situation, the card company does not consider you one of their preferred customers.  In this case, they are unlikely to offer you benefits to prevent you from leaving - but they may be willing to work with you to avoid bankruptcy or expensive loan writeoffs.  The article discusses how and when to work with debt counselors.  

The trouble with debt consolidation.  I do take some exception to the articles suggestion that consolidation loans or home equity loans offer a solution.  In my experience, they rarely help.  Consolidation loans offer a temporary band aid which protects your credit - but unless you have completely renounced the use of credit, you will likely end up with new debt on top of the old debt  And a home equity line makes that situation even worse, because it converts UNSECURED DEBT into SECURED DEBT.  Bad Idea!  Unsecured creditors (like credit cards) can call you, threaten you, hassle you, go to court for a judgment - but at the end of the day if you don't have the money to pay, they realize there is little they can do.  Debts can even be discharged  or drastically reduced in bankruptcy court.  In contrast, secured debt (like a mortgage, home equity loan, or car loan) allows the creditor to take possession of the asset that secures the loan.  If that asset is your home - they can foreclose.  If you are having trouble paying your debt and consolidate into a home equity loan, you have just put your home at risk of seizure.  And again, if you haven't dealt with underlying cash flow problem (too much spending, not enough income) - you will likely end up with more credit card debt AND a claim against your home.  

The trouble with debt management plans.  As the article points out, debt management plans are often recommended by credit counselors.  As opposed to debt settlement plans (which can be quite problematic) these plans do not promise to reduce your debt, but may offer more attractive terms such as lower rates and a single consolidated payment.  The idea is not bad.  What I don't like is that one of the terms of doing this is that you allow the plan with "first dibs" on your income or paycheck.  It might be more important that your mortgage get paid, or that you have money for groceries. I suggest being careful about accepting any offer that ensures that a creditor gets paid first.  

No debt plan will work if you don't fix the underlying problem first!   I also need to drive home this point:  If you are carrying credit card debt, the overriding goal isn't to negotiate a lower rate - it is to payoff the debt as soon as possible.  Negotiating a lower interest rate is simply another tool to help you accomplish that goal a little faster.  But the real heavy lifting has to be done by your budget.  If you haven't fixed the holes in your budget that put you in debt in the first place, then no debt management or negotiation strategy is going to help you in the long term. 

Still, with the exception of that piece of advice, it is a good article.  I might also add that when dealing with credit card companies (particularly if you are trying to lower an interest rate, or minimum payment) it pays to be persistent.  Work your way up the chain of command if necessary.   

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