Living Debt-Free by Shannon Lee Simmons

Author:Shannon Lee Simmons
Language: eng
Format: epub
Publisher: HarperCollins Canada
Published: 2018-10-30T16:00:00+00:00

Chapter 10

Debt-Slammer #1: Lower the Rate and Consolidate

Most people know that having a high interest rate on any debt is not a great thing. But I want to explain why. Let’s take credit cards, for example. Credit cards are the most common high-interest-rate debt that I see, more so than payday loans or overdraft. Credit cards are everywhere, and they typically come with a doozy of an interest rate.

Sometimes I say that credit cards are like your best friend and your worst enemy. On the friendly side of things, credit cards are convenient, often have rewards programs associated with them, and if you pay them in full each month, are interest-free. But if you can’t pay them back within the grace period (usually 21 to 25 days), you are charged interest, and usually at a high rate. That’s when a credit card becomes your enemy.

The kicker is that any payments you make will go towards interest first and then actually hit the principal. Let’s say that at the end of the grace period you owe $10,157.35, which represents $10,000 that you actually borrowed and $157.35 in interest. If your minimum payment was $305, you’d be paying $157.35 in interest and only $147.65 towards the balance owing (the principal). The balance left to repay would then be $9,852.35 ($10,000 – $147.65).

Suffice to say, high interest rates are not fun. That’s why people hate credit card debt so much. You and your money have to work so hard to repay even some of the principal. That’s why lowering your interest rate is so helpful, if you’re able to.

Lower That Rate and Consolidate (I love that it rhymes)

Step 1: Call your lender and try to negotiate a better rate.

So many people don’t take the time to do this. Yes, I know the hold music is the worst, but that Muzak version of “The Girl from Ipanema” could become the anthem for your financial freedom. Don’t forget, you are a customer of your financial institution. You can call and ask for a better rate. If you have a good credit rating you may be able to catch a break. The worst-case scenario is that they’ll say no, and you’re no worse off than before. But at least you tried, right?

My client Anthony couldn’t manage to pay more than the monthly minimum $150 payment on his $5,000 credit card, which was charging 19.99 percent. But he called his bank and managed to negotiate the interest rate down from 19 percent to 16 percent. Yay, Anthony!

Using the Debt-Payoff Calculator and the $150 monthly minimum payment, we were able to compare the difference for Anthony.

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