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My wife and I just called the customer service department of a credit card company, only to find them "unable" (at the account manager level) to lower the 25% APR on the card. The guy went on to say that everything's been switched to automated with no ways for them to do anything about it and that the system "periodically" checks all accounts to adjust the rate accordingly (up/down (yeah right on the down...)). We did manage to get one month's finance charges waived, but on this balance that's not going to be much aid.

My wife and I would like to get a house in 1-2 years, and getting a lower rate on that debt would increase our likelihood of being able to do so. We make a good income and could definitely afford a loan payment.

  1. Would it be a good idea to get an unsecured personal / consolidation loan to pay off this company and thus reduce the rate (also, there's no chance we'll use the card after paying it off)?
  2. Will it have consequences regarding getting a mortgage?
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Why not just get another credit card and transfer the balance? Many of them will give you special perks like x months of no interest for doing so.

Also, once you call to actually cancel the card you will see for sure whether they really have any power to negotiate rates. From their perspective 15% APR is more than 0%APR which is what they'd get if they lose your business.

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    once you call to actually cancel the card you will see for sure whether they really have any power to negotiate rates. Quoted for truth. – George Marian Mar 16 '11 at 23:18
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    True that. The trick is that the person you get when you call customer service usually doesn't have this authority. However, when you say the magic words "I want to close my account." you get transferred to the "Retention agent" whose whole job is to convince you not to do it. You can bet that person has a lot more power to negotiate. They will often start by trying to give you a temporary rate reduction, but hang tough to get the best deal. – JohnFx Mar 16 '11 at 23:22
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    Absolutely. Generally speaking, you should indeed be prepared to close the account (this goes for things other than just credit cards), but once you say those magic words their ears tend to perk-up. – George Marian Mar 16 '11 at 23:26
  • I've heard this a bit. We asked for the next guy up from the first one, but we didn't threaten to close the account. I think we'll have difficulty transferring the balance, as it's a little above $14k. I suppose we could transfer to several cards, but ultimately my goal is to get rid of cards entirely (after the house), except for each of us to keep our oldest one for credit score purposes. This one is her oldest one unfortunately... – JustinP8 Mar 17 '11 at 21:49
  • Extra unused credit cards will only help your credit. So there really is no harm in opening a bunch to spread the transfers out. In fact it might be a good idea because it will help your credit if none of the cards has over 30% of your credit limit used in outstanding balances. – JohnFx Mar 17 '11 at 22:40
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I think it depends on how you're approaching paying off the credit card. If you're doing some sort of debt snowball and/or throw all available cash at the card, it's not likely to matter much. If you're paying a set amount close to the minimum each month then you're probably better off getting a loan, use it to pay off the card and cut up the card. Well, I'd do the latter in either case...

Mathematically it would matter if the interest rate on the card is 10%-15% higher than the personal loan but if you're throwing every spare dime at the card and the some, it might not matter.

Another option if you have the discipline to pay the debt off quickly is to see if you can find a card with a cheap balance transfer, move the balance over and close the inflexible card.

  • I wish I could mark 2 answers, this one is pretty close to my thinking in this situation. We're trying to save up a down payment while we pay down some debt. I know that seems retarded mathematically, but factors outside of the math are involved. So, we're paying extra on the card, but we're also saving back a pretty good monthly amount for a down payment too. – JustinP8 Mar 17 '11 at 21:51
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I am answering this in light of the OP mentioning the desire to buy a house. A proper mortgage uses debt to income ratios. Typically 28/36 which means 28% of monthly gross can go toward PITI (principal, interest, tax, insurance) and the total debt can go as high as 36% including credit cards and car payment etc. So, if you earn $5000/mo (for easy math) the 8% gap (between 28 and 36) is $400. If you have zero debt, they don't let you use it for the mortgage, it's just ignored. So a low interest long term student loan should not be accelerated if you are planning to buy a house, better put that money to the down payment. But for credit cards, the $400/mo carries $8000 (banks treat it as though the payment is 5% of debt owed). So, I'd attack that debt with a vengeance. No eating out, no movies, beer, etc. Pay it off as if your life depended on it, and you'll be happier in the long run.

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Take the consolidation loan and pay it off. Don't close the card.

Opening a new account will have no bearing on your mortgage a year or two down the road. Keep paying on time -- that will make a big difference!

JohnFX's suggestion to open a new card and do a transfer is a great idea if you have good credit. Just read the fine print -- most cards charge a 3-5% transfer fee and some cards accrue interest if you don't pay within the promotional period.

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  1. i think it's always a good idea to lower the interest.
  2. it will probably lower your credit score a little when you get a loan (unless it's a persona loan not reported to credit bureaus), but since you'll pay off your debt faster, having less debt when you apply for mortgage is always better.
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    Would such a scenario necessarily lead to paying down the debt faster? That is, businesses make loans in order to make money. Thus, they prefer/require that you pay the loan on a defined schedule. – George Marian Mar 16 '11 at 22:48
  • You are right, only if the loan is the same or a shorter term, then it make sense to "refinance" – Vitalik Mar 16 '11 at 23:13
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Go where your money is treated best. If you can lower your APR, great.

It should help a little bit with getting a mortgage if you can reduce your payment. Your debt-to-income ratio would go down.

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