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