I wonder if I should be telling you this…

It’s perfectly legal. And it could save you thousands – if not tens of thousands – of dollars. Well, I’ll just tell you what my sister-in-law did and let you decide if this is for you.

My sister-in-law is starting her own business. Using her home as collateral (it’s paid off), she got a business loan. But before she started to spend that money, she called up several of the credit card companies she held cards with. This is what she told them: “I’m starting a new business. I’m going to be spending a lot of money. I can’t guarantee how much longer I’ll be able to make my monthly payments. But I have some money right now. And I’m willing to pay off 80 percent of what I owe you today if you’ll cancel my card in return.”

Every credit card company agreed. And she used nearly $40,000 of her business loan to pay off $50,000 worth of debt.

Keep in mind is that this could slightly lower your credit rating. But if you’re in a position to pay off 75-85 percent of what you owe on a credit card right away, maybe you should make a call. If they accept the deal, you’ll not only be saving by not paying half the principal, you’ll be saving all the interest that would continue to pile up in the account until you manage to pay it off. My sister-in-law is a fast talker, but not that fast a talker. If it worked for her, it should work for you too.

She wasn’t lying to those companies. She didn’t twist any arms. In fact, she told me that they jumped at her offer – and here’s why…

Card companies put a value on your debt depending on your credit risk. Could be 40 cents on the dollar… or 60 cents… or 80 cents. If it’s 60 cents and you offer to pay back 70 percent of your debt, that’s a good deal for them, because they would be selling your debt on the secondary market for only 60 cents on the dollar. If it’s 60 cents and you offer to pay back 50 percent, that’s a bad deal and they would refuse.

The worse credit you have, the better deal you can negotiate. It’s not unethical, it’s a business deal. What’s unethical is when a credit card company raises your interest rate by 50 percent even if you have a perfect payment record.

Comment on this article

Andrew Gordon

Andrew Gordon is a former editorial contributor for Early To Rise Investor’s Edition. He has 20 years of experience working in infrastructure and environmental projects around the world. When he wasn’t traveling, he taught marketing and finance courses at the state university of Maryland. Mr. Gordon has authored several books for McGraw Hill and other publishing companies on energy markets, global countertrade practices and the hot growth sectors of China and Russia. He is also a top-rated speaker at financial conferences.