Reducing Debt Through Lower Interest Loans

by Melanie Cossey

It happens to the majority of us, credit card debt accumulates and before we quite realize it, we are carrying a debt load that is far beyond our means. When this happens, we need to take immediate positive steps to knock down the debt as quickly as possible. One of the most efficient ways to do this is to reduce the amount of interest we pay by shopping around for a better rate and having our balances transferred over. By doing this, we pay more towards the principal, thereby reducing the duration of the loan and saving ourselves potentially thousands of dollars over the lifetime of the loan.

Typically, a credit card carrying a balance of $5000 dollars, with an interest rate of 17.5 % and a minimum monthly payment of $150 would take you 3 years and 10 months to pay off. The total interest accrued would amount to $1, 846. However, if you were to transfer your credit card debt to a lower interest rate loan of 7 %, that same $5000 paid in increments of $150 a month, would be paid off in 3 years, 2 months, substantially reducing the amount of interest to just $564. That's a savings of $1,282.

There are several options available for lowering your interest rates. Each one has its benefits and drawbacks. By educating yourself, you can choose the one that is best for you.

Consumer Credit Counseling Service

Consumer credit counseling services offers to consolidate your debts into one payment, negotiating with creditors on your behalf to have late fees waived, interest rates lowered and loans extended. Counseling Services will require a 'donation' or payment to cover costs and handling fees. You need to weigh these costs to determine if you would still come out ahead by paying a company to negotiate a better interest rate for you; a service that you may be able to do yourself.

Choose a reputable firm that will handle the consolidation in a way that preserves your credit scores. Prior to the consolidation, due dates should be changed to correspond with the counseling service's payment schedule, since many counseling services only send out checks twice a month, on the 1st and the 15th. If these dates do not harmonize with the due dates on the cards, they will show up as late payments on your report. In addition, it's important to realize that you need to proceed with caution with these companies because not all are reputable and many remain unregulated. Watch for the following signs that may mislead you into trusting a company you shouldn't:

understand the term "non-profit." It does not necessarily mean the company is legitimate or that you will get a better rate. The laws governing a 'non profit' organization are vague. Many companies qualify for this title by arranging finances to indicate that the company has not profited, while paying their employees large salaries. To find out if a CCCS is legitimate, check with the National Foundation for Consumer Credit (NFCC) and the Better Business Bureau in your area. Be wary of companies claiming you can lower your monthly payments-this is a fallacy. As of March 25th 2004 the last two banks to accept lower payments discontinued this practice. Question companies that offer lower interest rates than their competitors. All creditors work off the same interest rate reductions and minimum percentage payments on balances so therefore it is highly unlikely to have this lowered. Be familiar with the current interest rates on the cards you carry and ask that you choose which cards to consolidate. You already