If you’re a newer reader you may not be familiar with the Credit Rate Reduction Rally.  One of the purposes behind the rally was to build a movement that is about optimizing interest rates for people paying off debt.  In my case doing this on one of our cards reduced the interest we’re paying per month (which also includes a lower balance from making payments) by $125.00 a month.  That would be like saving roughly $1,400.00 in one year’s time [calculated loosely with the assumption of a reducing balance with minimum payments].  Or three Nintendo Wii’s, several car payments, a very, very nice bottle of wine, a Mac Book with memory upgrade, or a nice donation to a charity.

Have you sat down and calculated how much money you might save by getting your interest rates reduced?  Be persistent, be consistent, and make them change your interest rate.  It could change your future!

My bride came up to me and in her normal, ever so sweet way, told me that our debt reduction plan was insufficient.  Normally this sort of thing would be a good thing, except that I exaggerated… she was ticked that we weren’t further along.  She wasn’t angry at me so much, it was just that she wants to go on a romantic anniversary trip and the debt is hindering that.  She’s fired up.

So she called up Discover, with whom we have a large line of credit [and accompanying balance] that we’re paying off and talked to an employee to find out if they could give us a better rate yet.  They’d told us not until March the last time we asked.  Well, upon asking for a lowered rate the gal on the other end of the phone told her that she would give us a 12.9% rate.  My wife, being fired up, asked for a lower rate than that.  To which she said, “No, I can’t do that.”  But at least my wife tried.

So we’re now paying half as much interest as we were 7 months ago because we were persistent.  The Credit Rate Reduction Rally is going to be semi-annual, but just because the rally is not happening right now doesn’t mean you shouldn’t call and press for lower interest rates.

Since this week is the Credit Rate Reduction Rally I wanted to explore, each day, one of the areas that the rally touches on.  You can imagine that credit card companies are in the business of making money off of your spending money.  Each time you spend money on your credit card and carry a balance for the specified period of time, your card company will charge you interest.  There are three way that the credit card companies may calculate interest: Average Daily Balance, Adjusted Balance, and Two Cycle Balance [see: How Does Your Credit Card Calculate Interest].  Since Average Daily Balance is common, we’ll assume that your credit cards use this method, but check your agreement, it could be different.

Given that there are multiple variables, we’re going to save time to present a principle: Lowered interest rates can save you huge amounts of money, even if you pay off a loan in the same standard amount of time.  Below is a chart that outlines this principle.

The other side of lower interest rates is that you can pay off the loans faster at a higher payment per month.  For example, the chart below shows that the payment is nearly identical for all three loans, but that the time period for paying off the loan is significantly faster with the lower interest rate.

The other side of paying off the loan faster is that you’ve also paid less interest, which means more of your money later on to do what you want with, for example investing, which works in the inverse: the higher interest you earn, the greater the return on the investment.  Think of interest rates as reverse investing: the more you pay, the more others are making off of you.  Their investment was the initial cash and patience with time, their return could be thousands of dollars.

If you’re new to the Watch My Money Maker blog you’re possibly not familiar with the Credit Rate Reduction Rally that is taking place next month.  From January 7th through 11th the world is invited to get blogging, posting, thinking, calling and making change to their credit card interest rates for the better.  Not everyone is aware of the fact that they can often negotiate lower interest rates for credit card debt.  Card companies make good money on charging interest, but they’d rather have you pay the cards off than leave them hanging with bad debt (even if later they come back with collection agencies).

Take a moment to check out the Credit Rate Reduction Rally homepage and consider blogging it yourself.  Or better yet: tell a friend.