Refinancing credit card debt -- any advice?

In My Humble Opinion
1

I’m a student. Before I was a student, I worked full time for a few years at various jobs, and made pretty good money for my age. While working, I applied for, and received, a credit card. I paid my bills on time, didn’t rack up a balance, and was generally a responsible card holder.

Fast forward to my going back to school, a year and a half ago. I stopped working full-time to focus on school, and for a couple months found myself with little income. During this time, I began (foolishly) using the credit card, and having little money to make more than the minimum payments. Due to interest accruing, and having made a few payments late, I am now being gouged by said company; my former 9.99 rate immediately jumped to almost 25%, and my balance has almost doubled (I stopped using the card about a year ago, realizing I was only going to make the situation worse).

Anyway, I know I did exactly what the card issuers like; racked up a balance, which I will eventually pay off, after they get a big chunk of change in interest. What I’m interested in doing, though, is refinancing this balance; unfortunately, I have no idea how to go about doing this. Presumably, this would involve applying for another card, and transferring the balance – but I could be wrong.

The amount owed is around $4000. Not ludicrous, not enough for me to consider bankruptcy or anything, but enough that my meager part-time job won’t get me out of the hole any time soon. What, then, is my best course of action for getting this paid off at a lower rate? A web search is little help, as everyone and their grandmother is in the loan refinancing business, and I’m not in the mood to have another negative financial experience with someone who isn’t on the level.

Have any Dopers done this? Are there any companies I should seek out? Any I should avoid like the plague? Anything I should know before I do this? Any advice is greatly appreciated. And yeah, I won’t let this happen again. :smiley:

2

is the card in collections? do you have good credit? is this the only debt that your looking to refinance?

We had about 4000 on a high interest card (ya know, the kind they give to people that have zero credit in order to build credit) anyway, we just balance transfered to a lower rate card (0% until April then 4.9% thereafter). Balance transfers are incredibly easy, once you get the new card you either call an automated number or go online, put in the old card # that you want to transfer from and in a week or two you'll get a notice saying that x was trasfered.

3

I have about 6K in debt that I have now transferred twice to cards offering 0% interest for a specific period of time. When the current 0% interest period expires I will transfer the balance again if I still don’t have it paid off.

Are you getting some offers in the mail? I probably throw away 3-4 every week. The two companies I have used are Chase and Capital One.

Maybe you can qualify for this offer? 0% for 12 months on balance transfers with no annual fee:

http://creditcardsatchase.com/portal/site/marketing/index.jsp?pgTitle=pg_cashbuilder

You definitely need to get it off that card with the 25% interest, that’s MUCH too high.

4

I you don’t have good credit, try a credit union (if you’re a student, there’s probably a university one you can join. Even community colleges are usualy affiliated with some sort of credit union.) You can probably get a loan through them for much less that 25%. I did this, got a loan at 9.99% (yes, it’s higher than 0% but much less than the 20.99% I was paying, plus I dont’ have to worry about any sneaky credit card company bait and switches and they take the payment out of my bank account).

And then make SURE you don’t build up another credit card balance!

5

Certainly look at refinancing with a different card, but also if you haven’t already speak to the current company. If you have shown them a good payment history for the last several months they may be willing to cut the interest rate. Probably not down to what it was before but every point you can shave off is going to help in the long run.

Some credit card companies will send out “convenience checks” which you can use to access the credit line. These will sometimes be at a lower interest rate than the card, either for the life of that debt or for a specified time. If your company sends you some, and assuming that there are no huge hidden fees like a per-check charge or an unreasonably high cash advance fee associated with the offer, do things like send your rent money to the credit card and then use a convenience check to pay the rent. Boom, you’ve dropped hundreds of dollars temporarily or permanently down to a lower interest rate. I did to transfer balances from a higher-interest card down to one that was temporarily at 1.9% and have so far saved myself several hundred dollars in interest, which more than offset the transfer fee I was charged for doing it.

6

I worked for over four years for a major credit card issuer as a middle manager.

Sooooo… the very first thing you must do is call your bank, and ask them to lower your APR. If you have a good FICO score and a decent credit history in general, this shouldn’t be a problem. At the very least, they may lower the rate for a set period of time. Any rep should be able to do this for you.

However, if you do end up transferring your debt to a lower rate card, there are a couple of things you must understand:

  1. Do not just keep the new card til the intro period is over and transfer the balance to yet another card with a low into rate. (Sorry, Glory.) The number of accounts you have and the length of time you have had them affects your FICO score. Opening up lots of accounts, even if you close them later, lowers your score, as your FICO score takes in to account all the accounts you have ever had, not just the open ones. In fact, you are best served by getting the rate on your current account lowered and keeping it instead of opening up a new account.

(If you don’t know what your FICO score is, and how it’s calculated, go to msn.com’s money section and read up. Your FICO score is very important to understand.)

  1. Make sure that the rate on the card after the intro rate is over is better than you are currently paying.

  2. Don’t take a card with an annual fee.

Also, check out www.bizrate.com for a good summary of the current rates on all kinds of credit cards, loans, etc.

Also, why is your rate now 25%? Was the 9.99% an intro rate and the 25% is the “go-to” rate (aka - the rate the account goes to after the intro period is open)?

7

Hmmm, so closing an account and opening an account after a year is worse than paying 400$ a year in interest?

I only have three credit cards:

  1. American Express - work only, balance paid in full every month

  2. Citibank Mastercard - monthly EQ fees, paid in full every month, kept around for emergencies but seldom used for anything else

  3. Chase card - 6 K balance, paid every month, interest free for another 9 months, after that I will transfer to a 0 % card, I have no interest in paying interest :slight_smile:

My only other debts are house and car (paid in full in March!)

I think my credit can handle a new card once a year. I’d rather take a small FICO hit than throw money away so some fatcat credit card executive can lounge around on a beach in Fiji.

8

From the OP:

9

Ah, thanks, Otto. Next time I’ll read more carefully.

It depends on what you’re trying to achieve. Me personally, I want the highest FICO score possible.

But do you know how much of a hit you’re taking? I’d get a FICO score from all three credit reporting agencies, along with a copy of the credit report. (BTW, I also agree that credit cards and credit card companies are eeeeeevillllllll.)

Obviously, with a mortgage and a car, it’s not like you’re uncredit-worthy. I just think folks need to understand that there is a consequence to transferring balances from card to card to card. I personally don’t think it’s a good idea, and I would not recommend it to others as a strategy for paying down debt.

10

Occ, there are also debt consolidation companies that could help. If you decide to go that route, just make sure that you are using a NON-PROFIT service. My credit was hosed because I went with the first service I could find, and they were only out for themselves. Not only were they charging me to pay my bills, but they were making the payments late! They never informed my CC companies that they were on the job either, so said companies cut me no slack. Truely a bad situation.

However, after finally untangling myself from that horror, the next place I found got all of my interest rates dropped to 0% (I had 4 cards) and developed a payment plan that I could meet. One of the best things I ever did was to call this service.

And my FICO was damn near perfect when I bought my first house 5 years later.

11

Whether a credit counseling service claims to be non-profit or not is immaterial. Many, many “non-profit” ones perform the exact same scams Awgrimm mentions.

Check how long they have been in business, their BBB status, etc.