Tips to Lower Credit Costs

Depending on your financial situation, and how you use credit cards, some of the following tips may save you money:

Use credit cards as charge cards. In other words, pay off the amount that you charge within the grace period.

Charge new purchases on lower interest-rate cards. If you can't pay in full within the grace period, charging on the lower rate cards will save money on interest charges. If you have many credit cards, carry only the ones that you may need for emergencies (such as gas and telephone cards) and only a few selected store or bank cards, arranged in such a way in your wallet or purse to remind you which cards offer the lowest rates (lowest rate cards on top?).

Pay off charge card balances as quickly as possible. Don't let the charge card companies keep you in debt forever. A key part of your credit agreement relates to the minimum payment that must be made each month to keep the account current. While a low payment requirement gives you the flexibility of making smaller monthly payments, it comes at a hefty price: by making smaller payments, you extend the time period in which you will go on paying interest. This will increase the total interest that you must pay. Depending on the interest rate and minimum payment provision that applies to a charge card, if you make only the minimum required payment each money, you might not pay off the balance for over 20 years!

Pay off high interest, high fee card balances first. If you have enough money to pay more than the minimum amount due on at least some of your credit cards, you'll save money by first paying off the cards that charge the highest interest rates and other fees.

Tip Investigate whether you can transfer the balance on a high-interest, high-fee card to a lower-interest card. Many bank cards offer introductory rates for balance transfers. Whether this is a trap or a wise move, depends on your ability and determination to pay off the debt before the introductory teaser rate expires. You can also call the bank company and ask for a lower rate. Yes, that sounds crazy--but it often works, particularly if you indicate that you'll be transferring the balance and closing the card if they can't help you out. In any event, you will have lost nothing be making the effort.

Avoid late-payment and over-limit penalties. If you find yourself strapped for cash to make all of your charge card payments on time, you can use the information that you compiled about your credit cards to figure out if you can save money by paying some of the cards (the ones that impose the highest fees) before the fees fall due, and delay payment on some of the others. This is, at best, an imperfect solution, since habitual late payments will adversely affect your credit rating. But it might help you weather a cash flow dry spell.

Warning Be very wary of this strategy and do not attempt it without knowing all the facts about all of your credit cards. Buried in the fine print on some credit cards is a cross-default provision. This means that if you default on another creditor's payment, then the bank can increase the APR on the money you owe to them. Yes, even if you pay Bank Card A on time every month, a failure to pay on Bank Card B, a gas card or even a utility bill means that Bank A can jump your APR from 11.9 to 18.9 and apply that to your outstanding balance with them. And, yes, nearly all credit card companies regularly run your credit history looking for signs of trouble. Rather than simply skip a payment, get on the phone with your credit card company, explain your situation and ask for "permission" to miss a payment. Many times the company will agree.

Use overnight delivery to save charges and fees. Sometimes you may find yourself in the situation where you have the money to pay an overdue bill, but the normal time necessary for postal delivery of your payment will mean that the payment will not be received until after your creditor will assess a late payment fee. Because many charge card companies now assess hefty late payment fees ($15, $20, and up!), consider whether you could avoid these fees by sending your payment by overnight delivery, either by way of the US Postal Service, or by private carriers. Besides possibly saving some money, sparing your credit file the addition of a late-payment notation is a good idea.

Tip Better yet, set up online bill paying for all of your creditors! In nearly all cases, you will continue to have the option of paying by "snail mail," but you will have the flexibility to make last-minute payments and know that you have dodged the late payment fees. (Of course, the optimal way to ensure that you don't have last payment fees, if to set up automatic payments--even if the automatic payment is the minimum on the card.)

Negotiate for better credit terms. As already noted, if you are a good credit risk (you have steady and adequate income, and a history of paying your bills on time), you're someone that your existing credit card companies want to keep doing business with. Because the consumer credit market is highly competitive, your current charge card companies are not the only ones who would like to have you as a customer. Thus, if you have charge accounts that charge high interest rates and/or high fees, consider trying this: call up the company and say that you intend to close the account and open an account with a competitor who offers a lower rate (or no yearly fees). It would be helpful if you have done some research and can quote competitors' rates. If you are a valued customer, the company will often offer to lower the rates that it charges you for future purchases, and may lower or eliminate the yearly fees. This strategy is not for the timid, and, to be most convincing, you probably should be ready to make good on your threat to take your business elsewhere, if you're not satisfied with the credit company's response.

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