- Sally has 3 credit cards at different interest rates:
Credit Card A - 15%, Credit Card B - 20%, Credit Card C - 25%
- The average interest rate - (15% + 20% + 25%)/3 = 20%
- The outstanding balances in Credit Cards A, B and C are $15,000, $10,000 and $5,000, respectively.
So, the total outstanding balance = $15,000 + $10,000 + $5,000 =$30,000
- Sally combines the 3 credit cards into a new secured loan at interest rate = 12%
- At the end of the year, Sally lowers her interest rate by = (20% - 12%) = 8%
- If the new secured loan amount is also $30,000
then Sally will save = 8% * 30,000 = $2400 every year.
What is interest rate arbitration all about?
Interest rate arbitration is a process wherein you take out a secured loan, at a relatively low-interest rate, to pay off your existing unsecured debts. This process helps to lower interest rates on your debts. So, if you're finding it difficult to make the higher payments on your unsecured debts, then interest rate arbitration may be the right option for you.
You take out a secured loan, by pledging collateral, to pay off your unsecured debts, such as credit cards, store cards, medical bills, etc. straightway. As the interest rates on the secured loans are usually lower than that of the unsecured ones, so it helps to cut your monthly payments. Moreover, you only need to make a single monthly payment on the new loan at a low-interest rate, which you can easily afford.
So, if you have multiple credit cards, payday loans, medical bills, and you're struggling with the monthly payments, you can go for arbitration. Through this, you can consolidate and replace several bills into one monthly payment at a low-interest rate. This is also known as loan consolidation.
can save you
Is rate arbitration possible through balance transfer method?
You can arbitrate interest rate through balance transfer method as well. In a balance transfer method, you can transfer all your balances from high-interest credit cards to a single low rate card after paying a processing fee. Thus, it allows you to lower your interest rates and save money on your unsecured debt.
Some credit card companies charge 0% interest rate on these cards during the introductory period. This period normally lasts for around 6 to 12 months. This means that you don't have to pay any interest rate during this time-period. You only have to make payments toward the outstanding balance. It is best if you can pay off your outstanding balance within the introductory period. This is because the credit card companies can double or triple the interest rates once the introductory period is over.
For example: Emma has 2 credit cards with Capital One and Chase at 15% and 20% interest rates respectively. Emma takes out a 0% interest card from Bank of America and transfers all the balance into it. The BOA pays off the outstanding balances to Capital One and Chase. Thereafter, Emma only has to make payments to BOA.
When should you go for interest rate arbitration?
You may go for interest rate arbitration in the following circumstances:
- You can't afford to pay the high-nterest rates on your existing unsecured debts
- You are late on your payments
- Your credit score is decreasing
- You want to lower your interest rates
- You want to make a single low monthly payment
- You want to save some dollars for meeting your financial goals
Does interest rate arbitration actually help you?
Interest arbitration can help you:
- Lower your interest rates
- Make one easy monthly payment
- Save your hard earned dollars
- Make you stress-free
Does interest rate arbitration affect credit?
Usually, interest rate arbitration does not affect credit score in a negative way. Rather, it helps you rebuild or improve credit. Gradually your credit score improves as you continue to make the low monthly payments on time.