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debt
4 smart ways to tame debt

Even if you have a good credit record, this four-letter word will drag down your credit score, driving up your rates and costing you both money and opportunity. The diminutive word "debt" strikes big fear into the hearts of an increasing number of Americans, but facing debt doesn't have to be so scary.

Here are four steps that certified credit counselor Bruce McClary uses to defang debt problems for his clients at Clearpoint Financial Solutions in Richmond, Va. 

1. Get debt at the lowest rates
Getting debt at the best possible interest rates can be a surprisingly short process. To get lower rates, first familiarize yourself with the rate you are currently paying and then negotiate with your card company for a better deal. If that doesn't work then shop and transfer to lower rates, and finally, eliminate highest rate debt first.

Decrease or desist. Negotiating for a lower rate or giving a high-interest card its walking papers is the highest impact move people with decent credit can do. The key is to look at interest rates and see what the creditors are charging. "If rates are in the double digits (13 percent or 14 percent) take steps to look for a lower rate," McClary says. If you can't negotiate for a better rate, shop for a better rate. "Companies like loyal customers, but what do you as a customer get from that loyalty?" he asks.

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“Negotiating a better interest rate is easier if you are a loyal customer, carry a balance and have good credit.”

If you've been a good customer for a number of years, you're in a better position. Remind them of this, cautioning that you will look for a better option if not satisfied. "This can produce good results if you have decent credit," he says. It works even better if you are carrying a balance.

Go shopping. It's perfectly OK to transfer a balance to a card with a lower rate, but make sure to read the offer carefully. Is this an introductory rate? What happens when the introductory period is over? If you're enticed by low-cost balance transfers, check for transfer fees or other charges. Creditors may waive transfer fees voluntarily, so ask. And remember, no fees are written in stone, not even annual fees. Shop for the best deal on a balance transfer.

Before signing for a new card
  • Understand that missing a payment with one creditor can affect the rates you are paying on other cards. Notice of this preemptive strike is buried in the fine print of the credit card agreement.
  • Look for finance charges and terms, and understand when they can change.
  • Understand all the rate terms.
  • Figure out the penalty rates and when they can kick in. There are differences between creditors and when they will push the button on a penalty rate and how high rates can go.
  • Get a handle on how the minimum monthly payment is calculated, even though you'll conscientiously want to pay more than the minimum each month.
  • Know what the grace period is (if any) before interest charges set in.

Opening new cards and closing old accounts both negatively impact your credit score in the short run, so avoid using these steps shortly before making a large purchase. Bankrate's interview with FICO spokesman Craig Watts covers the topic in detail.

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