Negotiating APR’s: How I Saved Over $1,400 With Two Phone Calls

The average American household carries $8,000 worth of high interest credit card debt (How Does Your Debt Compare, MSN Money), but most Americans do not truly know what that debt is costing them in long term interest, as well as the opportunity cost of doing something else with that money.

At the start of 2009, my credit card debt was out of control. I was not working, was planning to move half way across the country, and had missed payments on both of my two credit cards. We’ll call them Card A and Card B. When I missed my payment on Card A, the interest rate immediately jumped to 19.90% APR! However,  when I missed the payment on Card B, the rate jumped to a whopping 29.90% because I had previously taken a cash advance from the card to my checking account. I was told that these rates would remain until I made 12 months of on time payments. There was virtually no hope of chipping into this massive debt for at least 12 months. It was time to come up with a better plan.

Using the financial calculators at DinkyTown.com, if I were to have made my minimum payments on these two cards for the next 12 months here’s what I would have paid:

Total Paid: $3820

Total to Principal: $1775

Total to Interest: $2045

That’s right, in one year I would have paid $2045 to interest alone.

This was not going to work for me. Soon after, I learned of a strategy for negotiating down your APR as outlined in the book, I Will Teach You To Be Rich by Ramit Sethi. There is a section in the book where Ramit shows you how to negotiate with your credit card companies to get a lower annual percentage rate. I followed his script nearly word for word with both cards and here’s what happened.

Card A:

Me: “Hello, I’d like to begin to pay off my credit cards more aggressively and I’d like you to lower my APR.”

Them: “I’m sorry, it looks like you missed a payment earlier this year. Your rate will decrease once you make ontime payments for 12 months.”

Me: “I did miss a payment, but I have been a customer with Company A for over X years. I have other card offers with much lower APR’s that also offer balance transfers to new cardholders, but I would not like to change cards. As I said, I would really like to start paying these cards off more aggressively. So what can you do to help me?”

Key: Be firm, but innocent. These guys don’t want to lose your business, and you have nothing to lose.

Result: Rate dropped from 19.9% to 10.9%

Card B:

I used virtually the same script as above, but with FAR greater results! This card was offered through my checking account and was not a card I particularly wanted, had intended to use, or wanted to keep, but somehow I had allowed myself to amass a large balance over time. I wanted to pay off this card as quick as possible and be done with it. I was fine closing it out once the balance was paid in full. Because of this, Company B offered me a special offer as long as I put nothing else on the card and closed out the account when I was finished.

Results: Rate dropped from an unimaginable 29.90% to just 5.75%

Let’s run a quick calculation with these new interest rates. Remember, this is one year of only minimum payments (if you are able to pay more than minimums, do so):

Total Paid: $3540

Total to Principal: $2940

Total to Interest: $590

That’s correct. Now the amount paid to interest was reduced to “only” $590.

Two phone calls. Total savings for one year? $1455!

If you are carrying high interest credit card debt, I recommend you get on the phone immediately and see what kind of deal you can negotiate. That simple phone call may save you thousands!

After doing so, please share your story and any tips here for other readers to learn from.