The Coming Interest Rate Cuts

Posted by: Henry B. | Feb 27,2008


On the front page of EoC today there’s an article talking about how cuts in the prime rate are not exactly going to have a positive affect on credit card rates.  In fact, credit card rates may go in the opposite direction, as lenders are reeling from losses in the mortgage industry.  All true, but there’s one thing that the article doesn’t point out.  Though cuts in the prime rate may not necessarily affect credit card rates directly, people will still be saving money overall, so the cuts do have an important indirect effect.

Suppose you are in the middle of a mortgage and you choose to refinance under the terms of the new rate cuts.  As is the case with the best refinancing plans, you’ll have more money left over month to month to use on other things: savings, investment, paying down debt, and what have you.  So even though the cut in the prime rate has no direct correlation with credit card rates, it will still allow a number of borrowers to potentially pour money into paying off existing high interest debt.  

Conceivably, these same borrowers could pay off a significant portion of that existing debt and then renegotiate for better terms.  Credit card issuers are much more inclined to lower rates when a credit card balance is well below the limit and cardholders have shown to be aggressive about paying off debts.  Remember, paying above the minimum isn’t just a good idea for getting rid of a credit card balance but it shows the credit card issuer that you’ve got sufficient funds to pay off future debts.  

If you renegotiate, a credit card issuer will look at your payment schedule – not just if you paid the bill on time, but how much you paid every month.  If it’s well above the minimum, you’ll be in a better place to negotiate rates.  Because of slashes in the federal rate, funneling more dough towards your credit card bill every month could be possible.  

Sponsored Resources Ads by Google