In
a recent survey, more than half of consumers who called their credit
card company to complain were successful in reducing their annual
interest rates by an average of one-third, according to a report
released today by CoPIRG. The report by CoPIRG and the state PIRGs—Deflate Your Rate—also
found that consumers with good credit ratings who had been with their
current credit card company the longest had greater success.
"Deflating your rate by one-third can save hundreds of dollars per year
and thousands of dollars over time in reduced interest payments," said
Rex Wilmouth, a spokesperson for CoPIRG who was able to decrease his
own interest rates. "Make the call today, and start saving tomorrow.
The potential savings are staggering."
In 2000, American
households carried revolving credit card balances of $574 billion, or
approximately $10,000 in total credit card debt for each of the
estimated 55 percent of households that carry debt, according to an
analysis of Federal Reserve Board data. A household making the minimum
required payments—commonly only 2 percent of the unpaid balance or $20,
whichever is greater—on this debt would pay nearly $1,500 in interest
in just the first year. Nationally, interest paid on that debt, if held
for one year, is $87 billion, the study found.
Volunteers participating in the survey called their credit card company
and asked for a lower APR. Key results from a national survey of 50
consumers were the following:
-
With
one five-minute phone call, 56 percent of consumers who called their
credit card company lowered their APRs.
-
Those
who were successful reduced their APRs by an average of more than
one-third: from an average of 16 percent to an average of 10.47 percent.
-
Factors
improving the caller's success rate included longer length of time with
a particular card, a low unpaid balance compared to credit limit, and a
history of no late payments.
-
Despite
eleven reductions by the Federal Reserve Board in the prime rate—or
interest rate charged to banks—in the last year alone, banks have
refused to pass along all of these savings to their customers, which
has resulted in excess interest payments.
Consumers
should do two things to save money on credit cards according to CoPIRG
research. First, call your credit card company and lower your APR.
Second, make bigger payments each month.
For
example, a household with a $5,000 credit card balance making only a
minimum payment of 2 percent of the unpaid balance each month could
save up to $278 in interest in the first year and $4,982 in interest
over time by deflating its rate by one-third, reducing total interest
payments from $8,350 to $3,368. But, that household could reduce its
total interest paid even more dramatically (from $8,350 to $743, for a
savings of $7,607) by increasing the size of the monthly payment to 10
percent, even at the higher interest rate.
CoPIRG urged consumers to:
-
Call
their credit card company, and ask for a lower APR. (Remember, your
chances are best if you have had the card for some time, are not maxed
out or close to your credit limit, and do not make late payments.)
-
Never
pay only the minimum payment due; instead, always pay as much as they
can afford. (If you have more than one card, make your biggest payments
on the cards with the highest APRs.) When consumers pay only the
minimum payment, they are running on a debt treadmill—the bank wins,
and they lose.
"Investing
five minutes on the phone with your credit card company can save you
hundreds—sometimes even thousands—of dollars," concluded Rex Wilmouth,
"That's a pretty good return."
CoPIRG
is a nonprofit advocacy group that works to stop consumer rip-offs,
protect the environment, and strengthen our democracy.
For additional reports on credit card problems and consumer tips, see the state PIRG website www.truthaboutcredit.org.
