I Just Saved $1400 In 15 Minutes
By Mike Hillyer | Related entries in Credit Cards, Debt Management…With Geico!
Just kidding, this is not an insurance ad. Rather, I decided to do something about the interest rate on my wife’s Visa card.
My wife and I both have a Visa card through TD Canada Trust, but we carry different cards. I have a TD Emerald card that has a $12 annual fee (going to $25 next month) and an 11% APR, and my wife as a TD Green card, with no annual fee but a rate of 18%.
I am usually not a fan of annual fees, but if your card has a balance I think the $12 (and even $25) is worth the 7% decrease in annual interest.
So I decided to call TD Visa and ask them to lower my wife’s interest rate by moving her to a TD Emerald card, and they were happy to oblige. In under 15 minutes the change was made (after talking to my wife of course), and we saved a ton of cash. Here’s the numbers using a calculator listed on the Tools and Calculators page:
$5000 at 18% interest with $125 fixed monthly payment:
62 Months
$2693.11 in interest
$5000 at 11% interest with $125 fixed monthly payment:
51 Months
$1257.12 in interest
That is a savings of $1435.99 for the cost of a 15 minute phone call! It also decreased the repayment period by almost a full year.
If you have revolving debt you owe it to yourself to call your credit card company and ask them to lower your interest rate. The worst they can do is say no, and if they do you can always shop around for a different card company with a better rate, and don’t be afraid to let your company know that, it may just encourage them to help you out.
After all, when is the next time you will save almost $1500 in 15 minutes?
This entry was posted on Friday, May 20th, 2005 and is filed under Credit Cards, Debt Management. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
May 20th, 2005 at 12:50 pm
Don’t forget… it’s more like $1300, or $1250 you’re saving - because you’re now paying the annual fee. Of course, that’s negligible considering the huge amount you’re saving - but for someone with a smaller debt to pay off it may come into consideration.
May 20th, 2005 at 1:22 pm
Doh, I knew I forgot something. Yes,it would be around $1325 savings after the annual fees. There is indeed a magic debt level where it is not worth the switch because the annual fee becomes greater than the interest savings, so anyone with a balance of less than, say $500, should stick to the no annual fee option.
Of course you would ideally want to find a card with a consistently low APR and no annual fee.
May 20th, 2005 at 1:22 pm
As I am from the UK I am unsure how difficult it is in the US, but can you not get a loan from a bank? I would think given the close to 0 real interest rate, you should be able to get a bank loan at 5 to 6%. Having debt on credit cards seem to be a last resort situation if you have no other way of getting credit.
May 20th, 2005 at 1:25 pm
Simon: Credit card debt is something you already have, bank loans is something you have to apply for in addition to what you already have. There is a catch-22 because when a bank sees credit card debt they often get restrictive on giving you loans, which you want to pay off the credit card debt.
It is a pretty viscious circle and often the best you can do is just work the credit cards down and ask for lower interest rates.
May 23rd, 2005 at 12:30 pm
Mike,
Sure; if you can’t get other debt to fund this debt, that makes sense - however there are a range of banks and companies that give loans for exactly this reason, and more often than not below 10%. Any post showing ways to lower credit card debt would do further service by saying this is a last resort, if you can’t get any other debt.
May 23rd, 2005 at 12:45 pm
Last resort? Perhaps, but I personally would think the first thing you should do is get your interest rates lowered on your credit cards. If you can then proceed to move the debt off of credit cards completely as a next step that is even better.
At any rate, experience in my case has shown that when you have a good amount of credit card debt you will not get any signature loans, so without a co-signer or collateral your only real option is to deal with the debts you already have.
That being said, I wholeheartedly agree that if you can get your credit card debt converted into a conventional loan, you should do so ASAP.
May 23rd, 2005 at 12:59 pm
You know, I think one of the problems with a blog like this is that you can’t put everything one one page. Ultimately credit cards deserve many pages on how you should never get a balance, but if you do convert it to installment debt if you can, but if you can’t get your interest rates lowered, and then snowball your payment with ordering based on either paydown time for morale or interest rate for savings.
Hmm, maybe I should just dedicate a nice big page to credit cards in a nutshell.
May 23rd, 2005 at 3:33 pm
Save $1500 in 15 minutes..easy. Get rid of all your credit cards.
May 23rd, 2005 at 3:45 pm
Hehe, I suppose the way to save the most on interest would be to pay the card off in full. Good point Howard.
May 24th, 2005 at 8:44 am
Mike,
Personally if there was one piece of financial advice I was ever going to give someone, it would be do anything you have to, to not have debt on credit cards - they are almost always the worst type of debt to have because they a) charge the highest rate b) are very happy with you not paying off the debt, c) allow you to create further debt before you even pay of what you owe. A bank loan has none of these characterisits (ok, you can get a bigger loan sometimes, but its harder than just spending more!).
I guess thats my point. Of course if you are stuck with credit cards there are ways to mitigate the loss. In the UK most credit cards come with free balance transfers for a couple of months, I don’t know if that is the same in the US. If I was stuck with credit card debt I would simply move it from credit card to credit card every couple of months until I could get a bank loan.
May 24th, 2005 at 8:54 am
Good point Simon.
May 24th, 2005 at 8:58 am
The only problem with moving Credit Card debt from card to card every couple months is that many cards will offer you the low balance transfer rate, but also charge a percent (usually 1-2%) of the total transfer as a transaction fee.
Just make sure you’re reading the fine print before transferring those balances, or you could end up incurring more transfer fees than you would in interest.
June 6th, 2005 at 4:15 am
This is a great, practical, and real case of how to improve your debt situation.
First, reduce the interest as much as you can.
Second pay it off.
But I do recomend paying it off with periodic payments, not the hard made savings as other finantial planners do.
Why? By doing periodic payments (of reasonable ammount, you are learning finantial discipline). And by keeping the hard saved money you have in the bank you are prepared to jump into finantial opportunities (that good rental condominium that may appear in your future, for example).
Money and Investing
November 8th, 2005 at 3:58 pm
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November 24th, 2005 at 11:59 pm
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