When I called my credit card company to challenge a five-dollar finance charge, I was not prepared to get my way. Shoulders tense, palms sweating, I was ready to fight. But much to my surprise, the customer service representative relented and took off the charge.
I am no credit card expert (I only own one) but I could not believe removing a fee was this easy. Just call up and ask? If the solution seems too simple, it is because few consumers realize how the highly competitive credit card market can work to their advantage.
“You need to use your credit cards to help you get out of debt. Make the banks fight for your business and get the best credit deals,” says Scott Bilker, creator of DebtSmart and author of Talk Your Way Out of Credit Card Debt.
Scott’s advice is particularly salient as Americans become increasingly maxed out. According to Experian National Score, consumer debt increased 12.5 percent between February 2004 and February 2006. In that same period, the number of late payments jumped almost 20 percent. Even though debt is increasing, credit card companies are scrambling to find new customers and keep old ones. None of these companies advertise leniency as part of their plans, but many are willing to lower Annual Percentage Rates (APRs) and forgo fees to retain our business.
I watched Mr. Bilker on a news show, NBC 10 Consumer Alert, as he adeptly abolished an annual fee, eliminated an old late charge and reduced an interest rate, all with one phone call. He remained calm, did not get emotional, and had the necessary paperwork in front of him.
Of course, Mr. Bilker is in the business of getting what he wants from credit card companies. What about the average customer, struggling under the weight of personal debt?
“I tried calling my credit card people and asking for a lower rate. They told me they did not have anything now, but to try back in another month,” laments my friend Jeannie Naughton, who calls her financial life a credit card horror story. “I thought at the time, ‘Screw them, I’m going to take one of these other lower APR ones.’ But I haven’t done it yet and now it’s been another month.”
Jeannie’s story highlights the fact that negotiating with these companies does take time and perseverance, and can be frustrating. But nothing is more frustrating than a fifteen day notice alerting you about an interest hike, or arbitrarily high fees incurred for being hours late on a payment. Though revolvers—a term the industry uses to describe people who keep balances on their cards—may feel powerless to change their situations, they should not walk away from negotiations.
Revolvers are the “sweet spot” of the industry. Their debt has helped generate record profits for credit card companies. The more you owe, the more a lender profits from keeping you as a customer.
So what should consumers ask for?
Mr. Bilker said that if your credit history is good, meaning you haven’t been late to any creditors, you should be able to get rates under 10 percent. Even if your credit is not good, you should be able to negotiate a 5 percent reduction. “Otherwise you need to PUNISH the bank by transferring your balances to another card,” he says.
He also notes that most banks will waive a first-time late fee.
Getting what you want requires being polite on the phone and not blaming the representative, who may have little control over your account. You should save your threats of closing or transferring your account until all else has failed. Do your research before threatening to move, so you know where to find a card with a lower APR or lower fees.
Of course, the best way to avoid interest charges and late fees is to be a “deadbeat”—the term used to describe patrons, like my friend Sarah Chen—who pay off their monthly balances in full.
“I have only had one credit card my whole life and I have always paid it off full each time. Credit card companies really hate me because I never have to pay interest rates and they make no money off of me.”
Negotiation can only get you so far, but realizing your options as a credit car holder can facilitate the path to debt freedom. Although my five-dollar charge was a mere pittance compared to most people’s fees and interest, it demonstrates that a little effort can save you real money in the world of credit cards.
