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Reduce Interest To Reduce Payments w/o Affecting Credit – Christina

“Dear Steve,

We have too much credit card debt and rely on overtime to pay our bills. In the current climate it appears that the overtime is going to be pulled back and we will lose that extra income.

Is there a way to reduce the interest on our credit card payments, thus, reduce our payment amounts, without it adversely affecting our credit rating?

Christina”

I asked my friend Mike Killian to answer your question for you. I wanted to make sure you got an answer as quickly as possible as I’m a bit backed up at the moment. I’ll be watching the comments on this question and be around to help if you need me.

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Dear Christina,

Like so many American consumers, we gobbled up credit offers every chance we got and the credit card companies were offering credit to any breathing creature it seemed. And we used that credit at every opportunity. The mortgage industry was right behind offering mortgage credit under exceptionally loose conditions. But all this easy credit caught up to us and we now have a very troubled economy. The end result was that credit was tightened up and to get any type of better credit offer, the credit score had to be in the better 700’s. Even existing credit card holders with decent credit scores had their rates raised.

Nonetheless and to answer your question, you should contact each credit card and see if the interest can be lowered. When credit was more flexible, this was always a possibility. Today, it is not quite the same. But depending on your current rate and especially your payment history, which constitutes 33% of your credit score, it is a possibility. And reducing credit does not lower your credit score.

Another possibility that does not lower your score is accelerating your pay off. I know you are losing overtime which is making the payment, but is there any other resource to increase your payment such as a second job. You may be interested to know that a simple increase can dramatically reduce the total interest and time to pay off the debt. For example, if you have a $5000 debt at 17% interest and pay $100 per month you will pay $11304 in interest over 40 years. That same interest and amount with a minimum payment of an added $25 will reduce the amount of time to pay off the debt and the amount of interest by nearly ½.

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If you have a very good credit score, another possibility is searching for a lower interest card and transferring the balance. But be careful on this. Insure that you are not going to pay introductory finance charges, annual fees, or that this is not just a temporary offer.

The other alternatives will affect your credit score but include contacting a debt counselor for a Debt Management Program (DMP). Simply locate a debt counselor in the yellow pages of a nearby major metropolitan area. Another option is debt negotiation. With this option you or a professional debt negotiator offer less than what you owe…. Say 50%. That sounds good on the surface but has some drawbacks. Debt negotiation usually requires a lump sum payment and completely destroys your credit. Additionally any debt forgiven above $600 will be taxable by the IRS as added income. The final option is bankruptcy. Find a local bankruptcy attorney and discuss your options.

I suspect the last paragraph above will not be of your choosing but at least now you are armed with all options available. BTW Stop using the credit card, of course, but do not close your accounts. Destroy your cards if you want but leave your account open as that could lower your score.

Sincerely,

Mike

If you have a credit or debt question you’d like to ask just use the online form. We are happy to help you totally for free.




About the author

Mike Killian

Mike Killian is founder of Learning Credit and Debt Management. He has been writing and teaching about credit and debt management issues for over 12 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years. He has an MS in counseling and is a nationally certified as a Personal Finance Counselor. Mike can be found at LearnCreditManagement.com/.

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