The first time I ever attempted to negotiate, I went up against a powerhouse of negotiator, my Dad. Our standoff occurred in a Toys-R-Us, where I desperately wanted to get the latest Pound Puppies toy. Typically, I paid fifty percent of any toy I wanted to purchase. Unfortunately, I was a little cash poor at the time and hoped my Dad would just cover the difference or give me an advance.
In the case of my Dad, he wanted to teach me responsibility, how to both curb impulse buying and avoid debt to buy a non-necessity. Plus, he simply didn’t need to bend to my whims. Unlike my Dad’s rationale, banks will refuse to negotiate simply because they want your money. Similar to my Dad, banks won’t negotiate because they don’t have to and have no real incentive – even if you threaten to walk.
Negotiating is an important skill – but unfortunately even those with CIA-level skills may not be able to deal with the banks.
The experts are (kind of) wrong
Suze Orman, Jean Chatzky, and Ramit Sethi all have one debt repayment strategy in common: call your banks and negotiate for a lower interest rates or to waive fees.
There are some instances when a bank may waive a single overdraft fee or a monthly maintenance charge. But if you start to make a habit out of going overdraft, then your bank won’t be forgiving.
Let’s lay out a scenario:
You are carrying a $5,000 balance on your credit card at an interest rate of 21% and you can afford to pay $200 a month towards the balance. It will take you 34 months to pay off your debt with an additional $1633 being paid towards interest.
So, you call up your bank to ask if they’ll lower your interest rate. You stay calm, friendly and they reward you with a 2% decrease in your interest rate to 19%.
Now, it will take you 33 months to pay off your interest at $1415. You saved a whopping $218.
While it’s great to have that extra $218 in your pocket – you could use multiple balance transfers to save $1,170 and reduce to a 0% interest rate without having to go through the hassle of negotiating with your banks.
However, if you can’t get approved for a balance transfer – you should certainly try to lower your interest rate.
Banks don’t reward loyalty
There is a nasty little secret when it comes to banking: they simply don’t reward your loyalty. Banks are constantly looking to acquire new customers, so the best deals are given to the “acquisitions”. In order to compensate for giving great deals to the new clients, banks will raise prices on existing customers.
At MagnifyMoney, we recommend you stay in the honeymoon period with your financial products – especially if you’re doing a balance transfer. Don’t get complacent and let them hike you from a 0% interest rate to 18%. Transfer the balance again to a different bank.
The answer: balance transfer
When it comes to your credit card debt, don’t waste time trying to negotiate with your bank. Simply give them a wave good-bye as you transfer your money to a different credit card (at a different bank) with a 0% (or incredibly low) interest rate.
Not sure how to complete a balance transfer? We have an entire series of step-by-step guides to help you.
When to work with your bank
There is always an exception to the rule – in this case you can try to negotiate with your bank after completing a new customer balance transfer.
Sometimes you can’t get a balance transfer approved to move all your debt. You may have $10,000 sitting on a card with Discover, but only get approved for a $7,000 balance transfer with Chase.
Once you’ve moved the $7,000 of your debt to a Chase card, you can call Discover and tell them: “I have just paid off a chunk of my debt. I’m going to do more unless you lower your interest rate.”
The real threat of moving your debt may give you more leverage.