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Tuesday, May 21, 2024   

Getting Out of Debt
by Scott Bilker
Scott Bilker is the author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. He's also the founder of DebtSmart.com. More about and DebtSmart can be found in the online media kit.
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Scott Bilker

Below are the questions and answers to my recent email interview with John Mark Eberhart from The Kansas City Star in Kansas City, Missouri.

John: A general question, for starters: I personally know folks who have high credit card balances, car loans, and other debts that are quite high. They're not in bankruptcy, but they feel so hopeless about ever getting out that they just can't stand to think about it. What would you say to such people? Is it as difficult as it seems? Why or why not?

Scott: I would say that they can take control of their financial situation! They have the power! It's going to take some work but there will be resolution in time. It will be difficult because of the nature of the problem. That being, owing money and not having enough to repay those loans. But the bigger problem is the cost of those loans. The interest rate. That's what can keep you buried for decades.

John: Related question: What is the single most important thing a person can do to get out of debt more quickly?

Scott: Get organized financially. You have to be organized so you can develop a plan. You know that old saying, "If you fail to plan, you plan to fail." Just the very act of looking through all the details of your financial life will bring a greater understanding of your situation and start your mind working on the question, "How can I start today in taking hold of this situation." Instead of the question most people ponder, "Why am I stuck with all this debt."

That's why I wrote my first book, Credit Card and Debt Management. This book outlines exactly how to get organized financially and how to move to step #2, becoming efficient with your current debts.

John: I've had limited success talking to my own credit card companies. In one case, I got an interest rate of 23.99% (!!!) reduced to 18%? Could I have gotten more? How? What am I probably doing wrong, and what do most people do wrong when they try to do this? I realize some of this, a lot of it actually, is in your book, but I want to be able to present quotes from our interview, too.

Scott: This brings us to my current book, Talk Your Way Out of Credit Card Debt. Clearly, calling your banks to negotiate lower interest rates is the fastest, and easiest way, to start saving money on your debts. Of course, you have to be organized before calling or else you won't know what to say. That's why I wrote this book. I want people to see what works, and what doesn't. Being organized before you call helps because you know all the details of your account.

In your case, you may have been able to get them go to even lower, but it's not too late. Call them back again and ask for another rate reduction. You're not going to be able to get from 23% to 8.9% in one call (although it is possible, it's unlikely) but you can get them lower and lower with every call over a period of time.

Most people make the mistake of thinking that they cannot negotiate with their bank. They feel at the mercy of their banks and that's just not the case. The next mistake is giving up during the call--being deterred by the long wait on the phone. Also, don't hang up after the first bank rep says, "no" without asking to speak to a supervisor.

John: In your book you write about negative credit report info being like points on your driver's license. In most cases, is time the only way to deal with that stuff?

Scott: If the information is true then yes, only time will take care of this. It has been reported that 50% of credit profiles have errors and therefore, you should periodically check your credit report for mistakes and dispute them immediately.

John: So what's your educational background? Are you an economist? And, does one have to be well-versed in finance to get out of debt? I mean, I have a minor in business/economics reporting, but I wouldn't think I'd need it to take control of my debts.

Scott: My background is in Electrical Engineering and mathematics. It was in my last year of college that I turned to my credit cards to pay for tuition, gas, food, etc. I needed to keep the cost of the credit as low as possible so I used my knowledge of math to properly compare all my credit options.

But no, you don't have to well-versed in finance to get out of debt. All you need are basic math sills, the desire, and the commitment to your goal.

Math is so important in being able to handle money and especially in dealing with loans. That's why I've dedicated a portion of my web site, DebtSmart.com, to focusing on Household Math™.

John: I have an American Express card with an annual fee. I never even thought about trying to get them to waive that, and my suspicion is that, because of the way Amex works, they would never agree. Am I wrong? Is EVERYTHING with credit card co's negotiable?

Scott: You're correct about American Express. They will probably never waive that fee! It's the only card I cancelled because they wouldn't waive the annual fee. Years ago I cancelled both my gold card and optima because of this but I did tell them, "call me when you don't have annual fees." And they did call. The Optima doesn't have an annual fee (as well as their Blue).

American Express is the exception when it comes to negotiating the annual fee. My experience has been that about 95% of credit card banks will waive the annual fee (if they charge one at all).

John: Regarding debt reduction strategy: Is it a good idea to try to start with a lowest balance, pay extra on that, then move on up the ladder? Or is it better to start with a higher-balance card? Say one balance is $1,000 and the other is $2,000, and the interest rate on both is the same, say 13.99%. Which should a consumer pay off first?

Scott: You should always start by paying back the card with the greater interest rate no matter what the balance is! If the interest rates are the same then it really doesn't matter.

John: You recommend using even credit cards with 0 balances for, what, two weeks out of the year? Why is that necessary? Why not just close the accounts?

Scott: When you close your accounts, you close your options! The best credit card offers come from you current accounts.

If the account is open but inactive for too long, many banks may close your account due to this inactivity. That's why I recommend using your 0-balance cards for at least two weeks per year. More importantly, I've found that if you use your 0-balance credit cards for two weeks and repay them in full, soon thereafter, they'll send you a nice low-rate transfer offer.

Scott's rule of thumb is that you need as much available credit as you have debt so you can make the banks compete for your business. If you have $10,000 in debt you need other 0 balance credit cards with $10,000 available so you can call them and say, "Hey, if you give me a low-rate, I'll transfer balances from my other cards right now!" That's an offer they can't refuse.



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