The best financial advice typically comes at a price –– whether it’s a $25 self-help book or commissions for investment advisors.
That makes it all the more exciting on the rare occasion that financial experts offer to dole out advice for free.
In a Reddit “Ask Me Anything” thread on Friday, an advisor from a major credit card company took dozens of burning personal finance questions from the public.
He or she asks to remain anonymous, but Reddit vets all experts before they’re allowed to host an AMA thread. We’ve also reviewed the factual responses* and found them to be accurate.
Here are the best of the bunch:
Q: Any tips on negotiating a lower interest rate?
A: Annual percentage rates (APRs) are tough cookies. A credit card company cannot lower an interest rate on a debt that is already on the account (unless the account is closed, which will hurt your credit). They can however, offer better rates for future purchases.
Q: What If I have a big purchase coming up and want to get a lower interest rate on my credit card account?
A: Call and ask for the retention department. Often they can give you promotional rates for small amounts of time (i.e 1.9% for six months 3.9% for a year) and then make big payments towards it before the promotional rate expires.
Q: What’s your take on doing a balance transfer?
A: Balance transfers are tough because they’re ideal for the customer but terrible for the creditors. I will tell you to do a balance transfer as a last resort. It will ding your score at least a little, but [do it] if you think that a lower interest rate would help you to pay off the balance faster and can work immediately after at building your credit back up.
Q: Is it true you can negotiate a “pay off amount” with your credit card company if you can’t afford to pay down your whole balance?
A: This is a question I get a lot, and there is no real yes or no to it, unfortunately. It all depends on the credit card company’s policy. Major credit cards like Chase and Discover do not do any types of settlements. However, some other smaller cards do (they at least want some of the money). As far as I know, you can not do a pay off and keep the credit account open, so plan on it affecting your credit score –– by a lot. If it’s already been sold to a debt collector, at that point any company would be willing to negotiate.
Q: What’s the best way to increase my credit rating so banks are knocking at my door with awesome offers?
A: Unfortunately, the best answer for this one is always going to be TIME. But there are a lot of factors that you can do that will speed up some of the process. Do not do any balance transfers between your credit cards and stay away from cash advances. Mortgages will always make sure your “debt-to-income” ratio is low. This means that if the amount of debt you have is close to what your annual income is, they will likely reject you.
Q: How can I get the best mortgage rates?
A: You will want to keep your debt somewhere between 27%-35% of your income to ensure a good mortgage rate. Make sure you’re making all your payments above their minimums and on time/early. So long as you have around five years or more great standing history with what’s being reported with the credit bureau’s then you shouldn’t see any problems with mortgage offers. I also recommend talking to realtors because they seem to know a trick or two, I had one tell me that a mortgage loan will almost always reject the applicant if they have been employed with their company for less than three years.
Q: I found a two-year-old collection from a hospital on my credit report and I paid it off in full. Will the collection still remain on my report?
A: You still will probably have to wait the 7-10 years. I recommend if it’s been over 5 years just calling the bureau that is reporting it and opening a dispute saying you don’t recognise it. If it’s already been on there for a while, sometimes they just plain take it off without any investigation. No guarantees, but it won’t effect your credit to open the dispute even if they find out it really was you.Q: Does how much credit you have matter as much to potential credit lenders as how well you make payments?
A: Having a card or two with a higher limit is good. But you don’t want too much unused credit either. The biggest thing you’ll find with loans is that they are looking for HOW MUCH history you have with your current creditors. The longer the better.
Q: What if you’re just lazy and like nice things?
A: Go into politics then.
Q: Is it better to pay off your entire monthly balance, just the minimum, or somewhere in between?
A: Never ever ever ever ever EVER just pay the minimum. Let me stress that again for emphasis: NEVER PAY THE MINIMUM! Paying off the monthly balance is beneficial to both you and your creditor. It builds history which is good for your score, shows you’re responsible, and you never earn interest.
Q: Was I stupid to pay off two credit cards and then cancel them?
A: It can hurt your credit. That doesn’t mean it will. If you have other cards that you’re still using and have other loans (mortgage, car, etc,) you should be fine and there should be minimal damage. If those were the only two lines of credit you had, then you might have hurt it more than you think.
Q: As a 22-year-old, how risky should I be with my 401(k) investments?
A: I always recommend doing low risk investments if you’re just starting to learn about building your 401(k) and would recommend only using around half towards actual investing (for the first five or six years). Don’t put your money in a high risk investment that you aren’t going to watch yourself. I have a portion of mine invested into some stocks and I monitor it on a bi-monthly basis just to make sure I know where my money is going. The only one who can be held accountable for your investments are you, so make sure to do as much research as you can before decided where to invest.
Q: What’s the best way to launder money without getting caught?
A: You’ll get caught. The longer you’re doing it, the more jail time you’ll serve
*Some questions and responses have been edited for clarity.
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