Getting Lower Credit Card Rates

Dave Ramsey's recent first stint as the money answer man on The Early Show was so successful, he came back for another one Tuesday.

The financial author and radio show host fielded questions sent in by viewers. We got so many after the first segment, we knew we were onto something!

This time, the missives involved how to get credit card companies to lower your rate, whether it's better to save for your kids' college or your own retirement, and what the best investment vehicles are for young people.

Carolyn wrote: "I've heard that you should ask your credit card companies for lower interest rates. I called and asked that our 19.9 percent rate be lowered. We have been card holders for many years and have a good credit history. The service rep told me that they randomly select card holders to be offered lower rates. I find this hard to believe. Any advice on what steps to take next?"

Carolyn is right, Ramsey replied. That guy on the phone was pulling her leg. She needs to call the credit card company back and simply say, "Lower our rate, or we are going to move our business."

If Carolyn is truly a good customer, there is no reason for her to be paying such a high interest rate. Ramsey likened this to a landlord demanding the same rent from a risky tenant and a dependable tenant.

"If you are breathing," he said, "you get lower offers for cards all the time."

So, when speaking to a customer service rep, tell him or her about some specific offers you've recently received in your mailbox. Go on to say that if they don't meet or beat the offers, you are immediately going to cancel your card and move your remaining balance to another card.

Ramsey guarantees this simple strategy will work almost every time, because the credit card industry is so super-competitive. The companies are constantly fighting for business, and they spend a lot of money to attract new customers. They certainly don't want to lose any current ones.

Everyone should take a look at your most recent credit card bill to see what interest rate your card carries. Even if you have a good payment history, the company may be charging you a high rate, simply because it can. Ramsey says anytime you are paying over 10 percent, you should call and ask for a lower rate. The average national rate right now is 14 percent, but plenty of cards offer rates closer to 10 percent.

Even if you aren't a great customer — meaning you tend to pay bills late or not pay at all — you shouldn't hesitate to call and ask for a lower rate. The company may not give you 10 or 14 percent, but they may lower your rate from 29 percent to 19 percent. And if you routinely carry a balance, you know this will still make a significant difference.

Of course, Ramsey points out, he has a ZERO percent interest rate — and you could, too, if you cut your credit card up and throw it away!

Tony wrote: "I'm turning 18 soon and am still in high school. I would like to start a retirement plan early so I don't have to worry about money when truly need it. I was thinking about opening a Roth IRA, but don't have a lot of money to put into it. Any suggestions?"

Obviously, Ramsey responded, this is a really, really good idea. You can't overestimate the impact of compound interest. For example, if Tony puts $2,000 in a good mutual fund when he is 18 and never adds more to the account, Ramsey figures that one-time deposit would grow to be almost $800,000 by the time Tony is 68.

Tony is on the right track, wanting to put the money in a Roth IRA. Roths allow your money to grow tax-free, and when you pull the money out in retirement, you don't have to pay any taxes on the earnings. You can deposit up to $4,000 a year, but there's no minimum amount you have to put in.

But, a note for Tony: You can't put money in unless you've actually earned money that year. And if Tony only made $1,000 at a summer job, he can only put $1,000 into the IRA.

And a word of warning: Remember that this money is going to be tied up in the IRA. Once you put it in, you can't take it out, unless you pay a penalty fee. Even 18-year-olds should have a small rainy-day fund, enough to fix a flat tire or handle other small emergencies. In other words, Tony shouldn't put all his money into the IRA. He needs to set aside some cash in an easy-to-access account first.

Mary wrote: "My husband and I are 55 and 53. We both work full-time and make about $80,000. Our children will be entering college in 2008 and 2010. We have no money set aside for college. We do have some money in an IRA, and one 401(k), but not enough to cover our retirement. My husband is planning on using the retirement money to pay for our kids' college. I'm afraid this will cause us to be financially dependent on our children, or worse — homeless in our old age. What should we do?"

Ramsey definitely agrees with Mary on this one. He says it's a bad idea to use that retirement money for college costs. Mary and her husband can't eat those college degrees at retirement time, Ramsey points out.

He's a big believer in college, but reminds parents that kids don't have to go to an exclusive, Ivy League school to receive a great education. He says that, according to a recent USA Today article, the average cost of tuition, room and board at in-state schools was just over $12,000 a year, or $6,000 a semester.

"Kids can make $1,000 a month delivering pizzas or throwing boxes for UPS," Ramsey said. "Or, Mom and Dad could get an extra job if they want to help Junior out."

In other words, there's no need to pull that money out of savings when you can earn it as you go along. Ramsey's not saying it will be easy, but it's certainly possible.

But how does Mary dissuade her husband from following through on his plan?

"She needs to confront this head-on with solutions," Ramsey said. "She can't just say, 'We will need to eat dog food if we do this.' She needs to show him how the kids can go to school without using the retirement money. So, she needs to try to create some solutions, some of which we've presented to her here, to show him that it can be done."