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By Herb Weisbaum ConsumerMan
msnbc.com contributor
updated 1/17/2008 9:34:02 AM ET 2008-01-17T14:34:02

December was all about buying the presents. This month, the credit card bills arrive. That ghost of Christmas past has people scrambling for ways to deal with the debt they ran up. One way to reduce your monthly payments is with a lower interest rate. Right now, the mail is full of eye-catching offers from credit card companies.

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January is traditionally a big month for credit card applications, but before you put another piece of plastic in your wallet, see if you can reduce the interest rate you are paying on the cards you already have.

A colleague recently did that. Shegot her bank to drop the rate on her Visa card from 15.9 percent to 12 percent. “I was amazed because I thought I’d have to fight to get it,” she says. “All I did was to tell them I wanted a lower rate, and they did it.”

Clearly, that won’t happen in every case. “If you’ve made late payments or exceeded your credit limit and are paying a penalty rate, they’re probably going to laugh in your face and tell you to take a hike,” says Greg McBride, senior financial analyst for bankrate.com.

But if you have a decent credit record, it’s worth a try. Gerri Detweiler, consumer advisor for credit.com, tells me about half the people who request a lower rate get one.

It’s helpful if you have some leverage, such as credit card applications from other lenders. This lets you play one company off another by telling your current credit card company what the competition is offering.

“They don’t want to lose your business,” notes Bill Hardekopf at lowcards.com. “It costs them a significant amount of money to get a new customer. If they can keep you, that’s worth the money to them.”

The balance transfer option
In some cases, it makes sense to transfer your balance to a newcard with a lower interest rate. You have probably seen ads for zero percent interest on balance transfers. They are very appealing, but you need to know the full terms of the deal.

What is the charge? In most cases, expect to pay a 3 percent fee on the entire balance you transfer. How long does that zero percent rate last? It could be as little as three months.

I just received an offer from my bank to apply for a MasterCard with "Zero percent fixed APR for 6 monthson purchases and balances transferred NOW!*" That little asterisk is there because after six months, the interest rate is variable. Right now, it's 9.99 percent, but read the terms and conditions and you will see it can go as high as 19.99 percent depending on your credit profile.

Remember, the low transfer rate only applies to the money moved over from another card. Any new transactions you put on that card — purchases and cash advances — get charged a much higher interest rate. Find out what that rate is; it could be more than what you are currently paying.

And there’s one more catch to balance transfers: Credit card companies apply your monthly payments to the part of your account with the lowest interest rate first. That means you should not put any new charges on that card. If you do, the low interest rate balance transfer will be paid off first, while you pay the higher rate on your new purchases.

It’s also critical to make your payments on time, every time. “If you are one hour late with a payment, your interest rate will jump dramatically, warns  credit.com’s Gerri Detweiler. “I’ve seen an interest rate go from 3.99 percent to 30 percent overnight.”

Shopping for a new card
You can probably find a card that has a lower interest rate, but don’t jump at the first offer you get in the mail. You need to comparison shop and find the card that is right for you. Try bankrate.com, cardweb.com, and lowcard.com.

“Credit card issuers are fantastic marketers and they can make any card look appealing,” advises Bill Hardekopf of lowcards.com. “Go to the terms and conditions section because that’s where the issuer has to lay out everything that applies to that card.”

You will also find out if that low advertised rate really applies to you. Generally, it is only for someone with good credit, a FICO score of 760 or higher. If your FICO score is less than 680, you can expect a much higher interest rate.

Don’t apply for multiple cards at one time. “Creditors get very wary of multiple applications,” Hardekopf says. “It can affect your credit score. If it does, your interest rate will go higher.”

Smart way to pay down credit card debit
You won’t get anywhere if you just make the minimum payment. Let's assume you added $1,000 of credit card debt during the last few months. And let’s assume you have a 15 percent interest rate on that card. If you just make the minimum payment it's going to take you more than 12 years to pay off that debt .But if you make a payment of $100 every month, you'll pay off the balance by December.

If you have multiple credit cards, which most of us do, it gets pretty overwhelming to get out of debt. So you need a plan.

“You’re going to save the most money and get out of debt the fastest if you focus on the card with the highest interest rate,” suggests Gerri Detweiler. “Just make the minimum payments on everything else, don’t sweat it, and put every penny you can toward that first card.” When it’s paid off, you move on to the card with the next highest interest rate and so on.

Are you in serious credit trouble? Talk to a reputable credit counselor before you do something drastic, such as file for bankruptcy. Find a certified counselor working at a non-profit agency. Go to http://www.debtadvice.org/, a site run by the National Foundation for Credit Counseling, to locate a certified counselor in your area.

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