You know, I really thought that this was going to be a relatively short post about how you could possibly benefit from using ‘sideways’ thinking when it comes to dealing with your bank, but… apparently brevity does not come to me as easily as I might like, so my apologies if the following post feels like an effort to read through.
For people who find themselves carrying over any sizable balance on a credit card from month to month, one of the most frustrating things about the situation of credit card debt(other than the fact you have debt in the first place) is that you are dealing with a potentially crippling high rate of interest on your debt. If you have taken advantage of balance transfer offers in the past and found yourself unable to pay off the accrued balance before the lower promotional rate ended, the subsequent hike in the amount of interest being added to your original balance can be quite a shock to the system.
Let me be brutally honest here: I’m kind of talking about myself. In a span of 18 months I had bought a new car and had also gone on vacation down to South America( a trip which had seen me and my Wife effectively max out one of our credit cards while abroad). Obviously those two things, the car loan and the trip, meant a very substantial rise in the amount of personal debt I was carrying Subsequently I found myself taking advantage of a promotional interest rate offer because I had the travel debt on a different higher rate credit card that I wanted to ‘shift’ over to my card with the short term promo-rate. The 0% interest rate was going to be in effect for up to 10 months so it looked like a better option than the higher interest I was currently paying. The problem is that the card I shifted to already had a balance on it so while I may have been consolidating my debt and getting the short-term benefit of a lower rate, I was also to some extent postponing responsibility for my debt to the future.
Oh, I should also mention that I have a personal line of credit that I have been carrying a balance on for a few years now; in fact it is pretty much maxed out at this point. That is mostly because of a time a few years back when my Wife went back to school and I found myself covering pretty much all of the household expenses and the line of credit became a safety net of sorts. I never felt very motivated to pay down that debt too much because the interest rate on it has always been lower than any other debt I have been dealing with so…
Anyway, fast forward to the last few weeks and there I was mulling over the uncomfortably large debt monster I have created.(something I find myself doing on a regular basis) Without getting into the numbers, I have been figuring out how long it will likely take me to pay down the bulk of my debt. I know that I am not yet at the point where I feel the need to contemplate any kind of formal debt consolidation, nevermind seeking out a consumer proposal, however I have decided that the least I can do is find a way of lowering the standard or ongoing interest rate of my credit card debt without messing around with any more balance transfers. I decided to go online and find the no fee credit cards out there that offer an ongoing low interest rate. I found a few options out there with two of the best looking to be the MBNA True Line MasterCard and the American Express Amex Essential card. I decided that I would apply for both of these at the same time; I had applied for a cash back card last Summer and was shocked when I was declined – it was the Tangerine cash back MasterCard and from what I have read online it seems that a number of people with a steady income but that are carrying any amount of personal debt have been turned down for this popular no fee card. In fact it was this failure to get approved for the Tangerine MC that spurred me on to look into my credit score in the first place. In the past my credit score had always been pretty strong – a bi-product of regularly paying my bills and having no real outstanding debts. However, the debts described above had definitely taken a toll on my once stellar rating. Because of this I was half expecting to be declined for the cards I was now eyeing. So anyway I went ahead and applied for the True Line card and already knew what low rate I would qualify for because on their application page they have a short form to fill out that tells you what rate you will qualify for and they claim that this inquiry does not affect your credit rating so that’s nice. Okay so I knew the rate BUT I didn’t really clue in to the fact that when they did the full-on hard credit check my credit score might not pass muster, and it didn’t.
As soon as I had completed my online application and got a response of ‘decision pending’ instead of instant approval I knew that something was up. The frustrating part of the application process for me is how it seems that the left hand does not know what the right hand is doing. While the application told me that a decision was pending and that I would be informed of the decision in the next 48 hours, the MBNA system was sending me an email response telling me that I had actually been declined and that further details would be mailed to me in a few days. Also, I consider it a bit misleading to have them use your information (including if you choose to give it to them, your SIN)to perform a soft inquiry in order to tell you a rate that you would qualify for only to subsequently be told that now that same information has led to you not even qualifying for their card.
Despite this experience, I decided to go ahead and apply for the low rate Amex card. From reading their application page it kind of seemed that they might be less hesitant to hand out their card to applicants. So I applied and … was told that I will have to wait a few days to hear whether I got the card or not. At this point I am assuming the worst. And regardless of whether I get this card or not, I have decided that I will not even consider applying for any more cards until my personal debt situation has improved considerably. I really just cannot justify taking any more hits to my credit score by applying for these cards – and if you don’t think that this kind of activity can have a negative effect on your score let me tell you it definitely can: I checked my score online maybe 24 hours after making these two applications and it had dropped a couple of points with the only changes to my listed credit report information being the applications for those cards. On a side note, it seems like any potentially negative information makes its way onto your report and score faster than anything positive like say a major payment on an outstanding debt; the applications were already listed on my report while the information reported to the credit reporting agency by my financial institutions regarding my debt repayments was almost a month out of date. A good thing to keep in mind for the future.
So where is the silver lining in all this? Is there even a silver lining to be had?
Well, the answer is ‘yes’, and the reason I referred to “sideways” thinking wayyy back at the start of this is because instead of ending up with a new low rate card from another bank, I instead ended up with a lesser-known pre-existing card from my own bank (RBC). So you see, instead of moving forward to another card, I instead moved sideways by finding a solution with one of my current creditors. After my disappointing experiences with both the MBNA and AMEX applications I decided to call my bank and ask them to switch me from my RBC Cashback MC to one of their lower rate cards. I did not have high hopes for this because last Fall I tried doing the same thing and the person on the phone had tried to switch me over then but was then unable to do so; according to the bank customer service rep that lower rate card was not available to me at that time. I suspected it was because I was carrying a high balance on the card and the bank was not very interested in forfeiting all of that extra interest they were getting out of me from my higher rate card.
Anyway, I had called them up again with the intention of making the same request (hoping that my lower balance might let them switch me this time) but with admittedly lowered expectations. What I thought would be the more likely outcome was that I would be declined again but maybe be able to get them to reduce the rate on my card by a few points. Well I called and asked for a lower rate card and to my surprise they agreed to switch me over to one of the two cards (both a VISA) that I already had my eye on.
The card I switched to is the RBC classic low rate visa. In this case the RBC in the title could stand for Really Boring Card because its only redeeming feature is its lower 11.9% annual rate on cash advances and purchases – and that’s okay because the only reason I wanted this card was for its low rate. The Classic Visa has an annual fee of $20 and a fee of $3.50 per balance transfer but since I have effectively just cut the interest on my credit card debt by 11% those costs are really negligible. If I had applied for a consolidation loan with my bank I doubt I would have received anything at a rate much lower than this card and getting this card was a lot more convenient than going to a bank branch for an appointment with someone in their loan department. This card will also give me more flexibility since it is more like having a line of credit than a fixed loan so I can use it for transferring over any other debts that I might have at a higher rate in the near future. Of course if in the future I find myself not really using this card and not willing to continue with the annual $20 fee, I might decide to just go ahead and cancel or switch over to a no-fee card instead. So if there is any lesson to be taken from all of this it would be to always try and consider all of your options when looking to reduce the interest on your debt because sometimes the answer might be somewhere that you have already stopped looking.
Oh, and that sometimes amazing things come in very plain packaging…