Americans are up to their you-know-whatsies
in credit-card debt. We owe, on average, nearly $9,000 per household,
the largest amount ever, and hold an average of 16 different
Thanks to rock-bottom interest rates, however, eliminating that
debt is easier than ever. "No one should be paying more
than 10 percent to 11 percent interest," says credit guru
Robert McKinley of CardWeb.com.
Ask, and you might recieve - It's always worth
asking your current card company to reduce your interest rate.
(The longer you've held a card, the higher your credit score,
which can help you snag a lower rate.)
Best deals on new cards - McKinley suggests
the following widely available cards: For balance transfers,
the no-fee Discover Platinum Card, which offers a 0 percent
interest rate through August 2004.
Otherwise, there's the Chase i-Card with an
8.49 percent rate. And if it's perks you're after, the no-fee
American Express Blue Cash Card has a 9.24 percent APR and offers
cash rebates of as much as 5 percent of purchases if you maintain
a balance and 3 percent if you don't.
Yes, you can refinance - If you're paying 5
percent or more on your car loan, consider refinancing. New-car
loan rates are typically running about 3.5 percent for 36 months,
4 percent for 60 months; used-car rates are usually 0.2 to 0.3
percentage points higher.
The savings won't seem all that huge -- on a
five-year, $20,000 auto loan, a 1.5 percent rate reduction translates
into roughly $900 over the life of the loan -- but they'll be
big enough to make it worth your while.
Why? Because refinancing a car loan costs next
to nothing in money or time. The only expense, says Brian Reed,
director of Capital One Auto Finance (formerly PeopleFirst),
is an average $15 charge from your local Department of Motor
Vehicles to transfer your lien.
If you purchased a car in recent months, you
may still qualify for a new -- rather than used -- car rate.
Otherwise, shop for the best rate online (bankrate.com
has current averages). Your local credit union may offer competitive
numbers, too. (Credit unions write about 20 percent of all auto
For a new car, finding financing on your own
-- either as a direct loan or in the form of a home-equity line
of credit -- can also enable you to take the rebate that's often
offered in lieu of low-rate dealer financing.
Take advantage of low rates - Interest rates
on federally insured student loans fell to historic lows on
July 1. The rate on Stafford Loans made after 1998 dropped to
3.42 percent, and to 2.82 percent for students in school or
in their grace period (the six-month window between the end
of school and the first required payment). Rates on PLUS loans
for parents fell to 4.22 percent.
Borrowers, even parents, can consolidate a portfolio
of variable-rate student loans into one fixed-rate loan -- but
they can do it only once.
Right now is a singular opportunity to lock
in at around 3.5 percent. Those slim profit margins have lenders
lobbying Congress to make all student loans, even consolidated
ones, variable, with an 8.5 percent rate cap, starting next
Discounts are key - If you haven't consolidated,
do it now. If all of your loans are with a single lender, you
must go to that lender for consolidation. If they're not, you
can shop around, but do it based on promised future discounts,
since today's interest rates don't vary from lender to lender.
Most consolidators will give you a one-percentage-point
break on your rate for a history of making timely payments.
But some, like Sallie Mae, require 48 on-time payments, while
others, like Consolidated Funding Service, will lower your rate
Also, look for discounts if you have the payments
debited from your bank account. And if you're fortunate enough
to be in your grace period, take advantage of it -- and the
0.6-percentage-point rate reduction it nets you -- by consolidating
before it expires.
Talk to all the players - Unfortunately, there's
no rule of thumb when it comes to getting the best deal on a
Sometimes you'll do better online, sometimes
through your bank, sometimes with a mortgage broker. (I know
this firsthand: When I refinanced recently, a mortgage broker
got me a better deal from a large lender than I could get myself.
Why? His volume business netted him wholesale rates.)
Call your current lender first and ask if you
qualify for a streamlined refi, which involves lower closing
costs and less paperwork. The trade-off: You may pay one-quarter
to one-half a point more in interest than if you'd started from
How long will you stay? - If you don't qualify
for a streamlined refi, ask yourself this question: How long
will I stay in my house? The answer is your guide to the right
type of loan for you.
Less than three years
If you have more equity than debt, consider
replacing your first mortgage with a home-equity line of credit
(HELOC). In nearly every market in the country, it's possible
to find a HELOC at 4 percent, the current prime rate.
Even if rates go up a full point each year,
they'll still be around 5 percent to 6 percent by the time you
pay off this loan. The best part? No closing costs that you
won't be around to recoup.
Three to seven years
Look carefully at a hybrid adjustable-rate mortgage
(ARM) that's fixed for the first five or seven years, then adjusts
every year thereafter -- hence the 5/1 and 7/1 labels.
On a $200,000 loan at 4.5 percent, your monthly
payment on a 5/1 ARM would be $1,013. That's $184 a month less
than a 30-year fixed-rate loan at 5.99 percent.
Your savings over the first five years: $11,040
-- in other words, serious coin.
More than seven years
A fixed-rate mortgage is probably the smartest
way to go. If you like the idea of a 15-year loan but don't
want to lock yourself into the higher payments, try making one
extra mortgage payment a year and directing it toward your principal.
It can knock the term of a 30-year loan down
to 23 years. Two extra annual payments a year will knock off
another two years.