How to Reduce Credit Card Interest With Debt Services

Credit counseling services offer debt management plans that can lower a customer's interest rates.

Credit counseling services offer debt management plans that can lower a customer's interest rates.

Credit card users with high interest rates or other debt problems can usually reduce their interest rates by using nonprofit consumer credit counseling services. Credit counseling, however, comes with some limitations. Other options -- such as debt settlement plans -- can also help credit card users address debt issues. Credit card companies will sometimes offer customers a forbearance plan that can reduce interest rates or delay payments.

Call Your Creditors

The Federal Trade Commission recommends that credit card users with debt issues, such as high interest rates, speak with a company representative before contacting a debt reduction service. The credit card company may have a forbearance program that can reduce a customer's interest rate, monthly payments and minimum payments, or delay payments for a period of time.

Credit Ratings

To help with negotiation, customers should know their credit rating when they contact a credit card company. Scores of 760 to 850 are classified as "super prime," the highest credit category, and 660 to 759 qualifies as prime. Scores between 500 and 659 are labeled sub-prime, the lowest rating. The interest rates credit card companies charge for these categories can vary.

Credit Counseling

Credit counseling services can help negotiate lower rates for credit card users. These organizations are often nonprofits, though they do charge fees and employ counselors to assess your debts and income and help develop a repayment plan. The FTC says that a reputable credit counseling service should send you free information about their services without requiring any information from you.

Debt Management Plan

If a credit counseling service believes you qualify, it can enroll you in a debt management plan that can lower interest rates. These plans require the service to collect a monthly payment from the consumer and distribute it to the credit card companies. They can sometimes negatively affect your credit rating and often have other conditions, which can include the requirement that you stop using credit cards. Customers should verify the details of a debt management plan with creditors to be sure they agree with the plan.

Debt Settlement Program

Customers with high credit card debt and interest rates could consider a debt settlement program. These programs are offered by for-profit financial companies to negotiate a lump-sum settlement of debts. According to the FTC, these programs carry some risk, including high monthly payments to set aside the lump-sum payment. A debt management program may damage your credit ratings, even if a settlement is reached. Also, the company offering the program could fail to negotiate a settlement with any or all of your creditors.

Debt Reduction Scams

Because of many debt reduction scams, the FTC recommends researching any possible credit counselor or debt service provider. Your state attorney general's office or local consumer protection agency will have information on reputable providers and scams. The Better Business Bureau reviews many credit counselors.

 

About the Author

Terry Lane has been a journalist and writer since 1997. He has both covered, and worked for, members of Congress and has helped legislators and executives publish op-eds in the “Wall Street Journal,” “National Journal” and “Politico." He earned a Bachelor of Science in journalism from the University of Florida.

Photo Credits

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