I’ve been getting a lot of stories of people struggling to get out of debt because of the recent How to Fight a Debt Collector series . They haven’t reached the point of fighting debt collectors yet and they want to keep it that way. As much as others like to malign those deep in debt, the vast majority of debtors want to make good on what they owe.
If you’re in heavy credit card debt, the first thing you need to do is take stock of your financial situation and stop spending. You need to get yourself on a budget  and stop the bleeding. Once you get that under control, the next step is to restructure your debts so you can make up lost ground. That’s where this post comes in.
The problem with credit card debt in particular is that the interest rate is always so high. We’re so used to seeing mortgage rates in the single digits that we forget that credit card interest rates are in double digits. Double digits! How is someone who has made spending mistakes going to recover if they need to pay 15-20% each year in interest?
They can’t. Once you’re on a budget and making regular payments, the next step is to lower the interest rate on your credit card debt. The answer, though, isn’t to go out and apply for low APR credit cards. That’s part of the answer, but that’s not step one.
Ask for A Lower Rate
Before you apply for a low interest rate credit card, try calling your current credit card issuer and asking for a lower APR. If you have been making regular on-time payments, there’s a possibility your credit card will just lower your interest rate. Since it costs you only your time to make the phone call to ask, I don’t see why you wouldn’t want to try this first. If they won’t budge, be persistent and say that you see better credit card offers available and you’re thinking about transferring your balance. The worst thing they can say is “no” and you lose nothing except a bit of time.
Consider Prosper, Lending Club
Peer to peer lending networks like Lending Club  and Prosper  are great places to try to get a loan if you have good credit. Both peer to peer lending networks require a fairly high FICO credit score  (FICO 640+) and the loan funding process can take about a month, since investors are bidding down the interest rate on your loan, it’s an option if you have time. With average interest rates in the single digits, these are usually very attractive compared to the rates on credit card debt.
Another benefit, or drawback depending on your perspective, is that the loans are for three years so you will be finished in a set period of time. Finally, if you do get a loan, you don’t have to get one for the full amount of your debt. If you owe $5,000, you can always opt for a smaller loan, say $1,000, so that you can convert part of the credit card debt to something lower.
Apply for Low Interest Credit Cards
From here, you can start looking for cards that have a low APR and willing to let you do a balance transfer. I’d check this list of credit cards with 0% balance transfers  to see if you can get a 1-2 punch of 0% APR for a year and then a low APR after the 0% promotional period.
If those don’t fit the bill, here are some cards that offer rates lower than the average (currently around 15-16%). The key is that you need the rate to be lower than your current rate. I don’t list the rates on this page because they are frequently changing but they will be listed in the card’s terms & conditions:
- Citi Forward  – This card has a low variable interest rate pegged to the Wall Street Journal’s published prime rates and it has a special program that lowers your APR when you use credit wisely. If you make a purchase, stay under your credit limit, and pay on time for 3 billing cycles in a row, your interest rate will be reduced by 0.25%. You can get this benefit 8 times for a total of 2% reduction in your interest rate! You also get 6,000 ThankYou points after $250 in purchases within 3 months, 2,500 points when you sign up for paperless statements within 3 months, and a favorable points reward schedule without an annual fee,
- Citi Platinum Select Card  – The Citi Platinum Select has a 0% APR on purchases and balance transfers for a limited time without an annual fee. Citi also uses the Prime Rate published in The Wall Street Journal two days before the statement/closing date.
So to recap, first you need to stop the accumulation of debt. After you’ve achieved that, which is no small feat, go to each of your cards and try to negotiate down the interest rate. After that, consider going to a peer to peer lending network to get a lower interest loan for part or all of your debt. Then, if you can’t get it lower that way, try a 0% balance transfer or transferring to a card with a lower rate. Keep in mind that cards will usually charge you a fee to transfer a balance, so the interest rate difference needs to take that into account.
(Photo: pumpkinjuice )