Do your homework before taking on a credit card

QUESTION: What is the first piece of advice you usually give to those who come to you with questions about credit card debt?

ANSWER: It is incredibly important to do something. Even something small that may not seem significant to you could be a good first step to tackling debt. The worst thing anyone can do is have their head in the sand and ignore what is going on. You absolutely have to take some sort of action and just get the ball rolling. That will hopefully give you some motivation to pay off that debt.

Q: How do you go about asking for a lower interest rate?

A: If you are edging to ask to lower your interest rate, it is important to do a little bit of homework. You should have a sense of your own credit history. If you are someone who hasn’t done a good job of paying your bills lately or you have had late payments, you should adjust your expectation because banks may not give you the benefit of the doubt. If you have done a good job paying bills but happen to have a card that has a high interest rate, basically what you can do is sell yourself.

Tell the bank about mailers that you have gotten or different offers you have seen. Tell them you wanted to see if the bank would be interested in working with you on lowering the interest rate. It probably would be a good idea to have those offers in front of you, so you can have a sense of what the market would bear.

If you are somebody who has a card with a 19 percent interest rate, you probably don’t want to go in and ask for a 10 percent interest rate. You could ask for 15 percent. That might be something that could be done or at least it starts the negotiations.

Q: What is the average rate for a new credit card right now?

A: The average rate on a new credit card right now is about 15 percent.

Q: What is a balance transfer?

A: With a balance transfer, you are basically taking what you owe on one card — usually a card with high interest — and moving that debt that you owe to a different card that presumably has lower interest — the hope being that the lower interest rate reduces that amount of interest you pay and helps you pay off debt more quickly.

A balance transfer can be a really good thing. But it is important you read the fine print and understand the rules and regulations with it because there can be some things that trip people up quite a bit. A lot of cards that we have looked at have said you have to transfer that balance in 30, 60 or 90 days after the card opens or you will lose the opportunity to take advantage of that zero percent offer.

There is also a transfer fee, which can also be a significant amount of money. Slate from Chase has no balance fee if you do a balance transfer within 60 days and that zero percent lasts up to 15 months.

Q: Do you have to wait for an offer or can you go out and apply?

A: You can absolutely go and apply. There are a lot of options out there. All of the credit card issuers have balance transfer cards. There are a lot of options out there. You certainly don’t have to wait for anyone to come to you.

Q: Are there some cases where a balance transfer is more work than its worth?

A: If, for example, the balance transfer doesn’t have a zero percent offer associated with it then it might not make a whole lot of sense especially if there is a balance transfer fee associated with it. But for the most part, they can work out very well for you. During that introductory period the bank can revoke that zero percent introductory offer if you are late on your payment. Then you are subject to the standard higher interest rate. You basically lose all of the zero interest time you were hoping to get with the card.

Q: What caution would you offer to someone looking into this option?

A: It really is about knowing what the deadlines are. Knowing how long the zero percent period lasts. It is also important to know what the interest rate will be after that zero percent interest period comes to an end. If you can’t pay the balance off in full during that introductory period, then you will be subject to that higher rate.