Should I trust this credit card offer to temporarily lower my APR?
February 21, 2017 9:59 AM   Subscribe

My credit card lender will give me a lower APR for a year but I won't be able to use the card. Does this sound legit or is there a catch I'm missing?

I recently started paying a much higher monthly payment on my (private, non-negotiable) student loan since my grace period has ended. Looking for ways to cut costs, I contacted a credit card company that I've been with for a long time to see if they would lower my APR. They offered to lower my APR for a year but use of the card would be suspended for that time. Is this a no-brainer offer that I should jump to accept? They said it was an "in-house" offer that would not be reported to credit agencies.

I am somewhat distrustful of credit card companies. I had a bad relationship/financial experience in my 20s and when I called the credit card company I was using at that time, they basically closed my account permanently while I was on hold. Today I'm a *little* smarter about debt, I pay my cc bills on time, and my experience with my present-day credit card's customer service is fine. I don't know if it would be better to try and make extra payments when possible while dealing with my current (higher) APR or take this deal, which would lower the APR to something like 16.99%.

I'm getting slammed by student loans so am looking for ways to save money in other areas. I also started using YNAB and am still on the learning curve with it.

I feel dumb for asking this question but I'm wondering if anyone has taken a similar offer with no negative consequences, since I feel like I can still miss the fine print with financial issues.
posted by luckyveronica to Work & Money (12 answers total)
 
I would need to know more details to really give advice here.

How do you use your credit card?
How much of a balance are you running?
How much credit space do you have?
What's the current APR?

If the size of your carried balance is small a few perc points won't make a big difference. If it is large then it will but it suggests you are living way beyond your means.

If you can go without that credit card for a year with no difficulties then maybe you should go for it but before you do I would consider looking for a better credit card with a lower APR (17% is still pretty high) and a low interest transfer option (beware of the one-time transfer fees - model out the costs).

One trick I used with my wife to get her to really appreciate the impact of credit card debt and the value of paying it off fast was to calculate out how much it actually cost us to buy things based on our projected repayment schedule. Finding out that your $200 will actually cost you almost $400 by the time you pay off your debt really changes your shopping habits. I also used a positive method of modelling how much money we would save if we didn't buy things and instead paid down debt.

We cleared our credit cards and loan debt about 5 years faster.

The Debt Reduction Calculator by Vertex42 on google sheets is pretty handy for this.
posted by srboisvert at 10:39 AM on February 21, 2017 [3 favorites]


It is sometimes mathematically better to move your debt around and play games with paying the least interest.

It is always practically a good idea to freeze debt spending, start budgeting your income, and pay off all your debt (without resorting to shuffling your money around to take advantage of tiny possible benefits). It's so simple, it only took me 10 years as an adult to 'get' it. Most of America never does 'get' it. As Dave Ramsey says, no one ever got rich on credit card rewards (or similarly: a good APR).

It sounds like you're on the right track already, so I'm just posting this to encourage you to stay focused on getting out of debt, and not sidetracked by maybe saving 50 or 100 bucks on interest if you don't mess up the technicalities.
posted by so fucking future at 10:48 AM on February 21, 2017


@srboisvert:

Thanks so much for your feedback. I am at the point where I'd like to leave credit cards mostly behind and just focus on paying them down while building up savings.

How do you use your credit card?
This has been my "everything" credit card--clothes shopping, work expenses (I'm a teacher), sometimes groceries, family outings (tickets to events, etc.). I haven't used it in a while because I'm almost at my limit and I'm trying to avoid using it altogether after it's paid down except for emergencies or major expenses that may come up (like an unexpected vet bill or dental bill). I was bad about using it for a lot of little things that added up until I'm like, "What happened?"

How much of a balance are you running?
$9,483 out of a $9,500 limit

How much credit space do you have?
$17

What's the current APR?
28.99%

I've never transferred balances before so thank you for pointing out transfer fees. Not sure if I would qualify for another card given my high debt/credit ratio, but I pay on time (auto-pay) and my credit score is in the 690s.
posted by luckyveronica at 11:21 AM on February 21, 2017


I wouldn't take the offer without getting some advice from someone with a really strong consumer credit background. My gut feel is that they're trying to wind you down as a customer. I'd trust them where they say they won't report, I'd suspect that after a year you might find that the card is still frozen somehow.

The 'offer' rate is still pretty high. At some point they must have jumped you to a punitive rate, unless this card is just a ripoff rate by design.

I hate to discourage you from paying more on the student loans, but if you're paying above minimum on them and carrying card balances, that may not be the best strategy.
posted by randomkeystrike at 11:36 AM on February 21, 2017


It may be possible to find a new card that offers a 12month 0% interest period on transfers. I've had a bit of luck transferring the balance of one card to another, and then using the year of no interest to try to put a real dent in the balance. There is a transfer fee with this strategy, and it is very important to not use the card for the strategy to work, otherwise its just a delay tactic and you're back where you started.

If you can find such an offer, you might go back to your original card and tell them that you are considering closing the account and transferring to another credit card. If you can get them to offer 0% for a year in order to keep you as a customer then you can avoid the transfer fee. Freezing the card seems like a pretty strong requirement, so I would be bargaining for no interest if they want to keep your business, and having another card to switch to gives you leverage and a backup plan if they say no.
posted by cubby at 12:07 PM on February 21, 2017


They can close your card any time they want, next year or tomorrow, so it's not as if accepting this offer somehow "strengthens" their position vis-a-vis you. From a credit perspective, slicing 12% off your rate is tempting. From a consumer finance perspective, though, you need to have a credible explanation as to what you'll do if three months from now you need $500 for a car repair or a dentist visit and have no card. That's the real point of concern.

It may be possible to find a new card that offers a 12month 0% interest period on transfers. I've had a bit of luck transferring the balance of one card to another, and then using the year of no interest to try to put a real dent in the balance. There is a transfer fee with this strategy,

A 0% card with a transfer fee is basically prepaying interest. If a person is not comfortable working out the differences in cost over a two-year period between a 0% card that will rise to X% after a year and charges T% transfer fee and a card with a constant Y% rate over that two-year period (unsurprisingly, X% is often higher than Y%), a person should not try this strategy.

On the other hand, trying to negotiate for a better offer in this situation costs you nothing, so threatening to try this strategy might be worth it.

28.99% is insane, anyway--it's got to be, as someone else said above, a penalty rate. Even getting almost any other card and using it (full monthly payoff only) while paying this one off would ultimately improve your situation.
posted by praemunire at 12:26 PM on February 21, 2017


If you can find such an offer, you might go back to your original card and tell them that you are considering closing the account and transferring to another credit card.

(don't actually close the account btw)
posted by AFABulous at 1:46 PM on February 21, 2017


From a consumer finance perspective, though, you need to have a credible explanation as to what you'll do if three months from now you need $500 for a car repair or a dentist visit and have no card. That's the real point of concern.

Problem here is she's got that problem now.

> $9,483 out of a $9,500 limit

I'd do anything I could short of taking out a second mortgage or refinancing my first to get rid of this card. I'd take their offer, and see if I couldn't figure out a way to get the card paid down to zero over that year.

If there was no balance, or if the balance was paid every month, there could be a different discussion, but with a card with that kind of balance and that kind of interest, you need to get rid of it.

I know it's easier said than done, but if you can come up with a way to even marginally increase your income and apply it to the debt you should.
posted by cjorgensen at 1:46 PM on February 21, 2017 [2 favorites]


So you've clearly reached the crisis point.

If you're like I was you probably knew this cloud was forming above your head but ignored it as long as you could because it's an ugly unpleasant situation.

So I'll tell you a bit of my story - My wife and I got out from under more than $100K of accumulated debt (student loans, post-doc'ing, living in expensive far-away places and being money foolish). It took 10 years and required facing up to the hard truths.

You need to figure out your cash flow. Every cent of it.

Make a list of your recurring monthly expenses, ordered from highest to lowest.

Look at that list and figure out what you can remove. It might seem easy to work from the bottom up (cancel online subscriptions or such) but that isn't where your money is really going. The big one is rent/housing. My wife and I put $10K more down on debt by dropping from a 2br to a 1br. The space is tighter but we didn't really absolutely need that second bedroom - it was nice when people visited but we were in debt and they were not so what the hell were we doing subsidizing their travels? The other perk of a small living space is that you don't have a lot of room for stuff. So don't buy it!

When we moved we also ditched cableTV - worth more than a $1K per year towards debt.

We started eating out strategically - when we spend money we spend it because we want to have a nice dinner out. Not because we are tired, lazy or just bored. This was worth several thousand a year. Having friends over is way cheaper than eating out. The booze is also cheaper.

Beer: I like craft beer. I was spending $50-60 on craft beer. My wife likes cheap plonk and was drinking a pretty affordable shiraz at $8 bottle at about 2 per week. I switched to getting a local growler special that costs $9 incl a $2 tip. My wife switched to a TJ's boxed shiraz that is about 4 bottles worth for 14. These small changes save about $3250 per year.

We read a lot. We used to buy the books we read. With a small 1 bedroom there is no room and we were tired of owning stuff. We use the library both physical and digital extensively now. It costs almost nothing (every now and then I get a late fee). The savings here are ridiculous - probably more than $5K a year.

We've switched to doing a lot of free things. Evening walks by the lake. Morning runs instead of expensive gym memberships. Cycling.

The important thing is to focus on the big stuff first before worrying about marginal returns. The biggest one for you is that credit card debt at 29%.

Maybe look for a credit union if you can. They will be better at helping you with managing your money than for profit banks are.
posted by srboisvert at 2:30 PM on February 21, 2017 [4 favorites]


Problem here is she's got that problem now.

It sounds like OP thinks her monthly income matches expenses now, if only just. But you could be right. If she is coming up short monthly, it's even more important to get that rate down somehow. Just going from 29% to, say, 17% would save her (very roughly) $1200 a year!

OP, I also forgot to mention that you should be investigating whether you can get IBR on whatever federal loans you have. (If you tell me you have a significant private loan and no federal loans, I'm going to cry and punch something that stands in for your school on your behalf.)
posted by praemunire at 2:37 PM on February 21, 2017


I don't know if it would be better to try and make extra payments when possible while dealing with my current (higher) APR or take this deal, which would lower the APR to something like 16.99%.

Can you clarify this? Why couldn't you make extra payments while the APR is lower? This is not an either/or.
posted by AFABulous at 3:47 PM on February 21, 2017 [1 favorite]


It sounds like OP thinks her monthly income matches expenses now, if only just.

Agreed, which means there's no room in the budget for emergencies (which in my mind do not go on a credit card regardless).

If she's paying it within $17 of her limit this is way too close for comfort. All you need is one or two minor charges you forgot about to have that $10 Netflix account cost you $40 more in fees.

I'm 100% credit averse for myself, but I'm not 100% credit adverse. I know others use it just fine. But if you are landing that close to the limit, that's not the way to go.
posted by cjorgensen at 3:56 PM on February 21, 2017


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