Financial Literacy Month is officially in full swing, which is a good reminder to brush up on key money topics. That’s something most of us could do: Only 57 percent of Americans are considered financially literate, according to a recent survey by Standard and Poor. (You can test your money smarts with our quiz.)
What’s the most misunderstood financial concept? Interest. That’s a pretty big deal, considering the average household pays roughly $6,658 annually in interest on their debts. And that amount could rise, depending on whether the Fed decides to inch up its benchmark rate at its next scheduled meeting.
(There’s also, of course, the good kind of interest you should know about: compounding. Taking advantage of it sooner than later helps you reach your long-term financial goals.)
One way to lessen your debt burden before it gets out of hand—besides, of course, paying off your balances faster—is calling up your lenders and negotiating a lower interest rate. Here’s how.
Credit card companies generally have the most leeway when negotiating rates over the phone. Dealing with mortgage lenders and student loan servicers can be a bit trickier unless you’re willing to refinance or consolidate your loan. Remember that the rate on your federal student loans is non-negotiable. But having a solid relationship with your bank may yield some modest results.
Regardless of the type of interest rate you want to lower, you need time and preparation to succeed. “You’ll be a better negotiator if you aren’t under the pressure of the clock,” says financial advisor Ray Ream, president of financial services company Cottonwood Associates. “I recommend writing out a script—making sure to do your homework on the current interest rates offered—and having it in front of you.”
Whenever possible, Scott Bilker, creator of DebtSmart.com and author of “Talk Your Way Out of Credit Card Debt,” advises finding offers from competitors—such as a balance-transfer or a low-rate card—to reference when negotiating. Try: “Listen, I like my card, but the rate is too high. I can either use your product or another. Please give me a reason to stay.”
When speaking with your student loan servicer, ask about benefits that reward people who exhibit good behavior they value, such as signing up for auto-debits and making consistent, on-time payments. And since you’re no longer a student, remind them that your financial situation is different—better—than when you took out the loans.
“After a few years in the workplace, you should be viewed as less of a risk, and therefore may be eligible for a lower rate,” says Chartered Financial Analyst Richard Barrington.
If the first representative you speak with can’t help you, request a supervisor. “Say that you would like to remain a customer and welcome any suggestions to help you get a lower rate,” says financial educator Harrine Freeman, owner of H.E. Freeman Enterprises, which provides credit repair and debt consulting. “Wait for a response or offer. Pause. If you are happy with their offer, accept it. If not, negotiate further for another offer.”
Freeman says if you score a 1-percent rate reduction on a credit card, consider that a win.
If you’re a strong borrower—meaning you have good credit and a history of on-time payments—Ream says you have a good case for an adjustment. “Don’t let anyone tell you interest rates aren’t negotiable; it’s just a matter of convincing the bank, broker or lender to take less commission,” he says.
According to Bilker, one interest-rate renegotiation call can save you thousands over the course of time you’re paying off debt, depending on how much you owe. And that’s cash you can use to get out of the red that much sooner.