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The Credit CARD Act recently went into full effect, with several regulations designed to protect consumers. Since credit card companies are no longer permitted retroactive interest rate hikes, no additional fees for certain payment methods, and no “double-cycle billing,” they are seeking new ways to make money. For some credit card issuers, this revenue will come in the form of interest rate increases.
If you make a late payment, credit card companies are still permitted to raise your interest rate to the default rate (without 25 days notice).
But some credit card companies are raising interest rates for no good reason. Fortunately, thanks to the Credit CARD Act, they are required to give you 25 days notice, which is long enough to take action.
Here are some options to consider when facing a credit card rate increase.
- Opt-out and close the card
- Call and negotiate a lower rate
- Transfer your balance
- Pay off your balance quickly
You can use these techniques if:
- You made one late payment in recent history
- Your introductory interest rate expired
- Your credit card issuer decided to raise your interest rate for another reason
Let’s explore the options.
Call and negotiate a lower rate.
This technique worked more effectively prior to the credit crunch and the Credit CARD Act, but it’s worth the phone call. If your interest rate went up because you made one late payment, and it was your first infraction, the credit card company may give you a second chance. Sometimes, if you sign up for automatic bill payment, the credit card company will be more forgiving.
We recently negotiated a lower rate with a Discover card by signing up for automatic bill pay, that way they knew we’d never miss another payment.
Ask to speak to a supervisor right away — he or she will have authority to lower your interest rate. You can also threaten to transfer your balance to another card if they won’t lower your rate. Stay calm, polite and rationale throughout the negotiation — you’ll get better results.
Transfer your balance.
Transfer your balance to a lower interest rate card, if you have one available. You can check out Creditshout’s credit card reviews to select a better card. If you’re applying for a new card, make sure to consider the impact on your credit score — after a slight dip due to opening a new account, your credit score should rise (if you make timely payments) because your debt-to-available credit ratio has dropped.
Also pay attention to balance transfer fees that may cost you more money in the long run. Do the math before making a hasty decision. Your best-case scenario is to transfer the balance to a 0 % card with no balance transfer fees and pay it off before the introductory rate expires.
Pay off your balance more quickly.
Obviously, keeping a balance on credit cards costs money. If most people could pay off their balances, they would. But when you’re faced with an interest rate increase that could cost you hundreds (or thousands) of dollars a year, you’ll be surprised how many corners you can cut if you take an honest look at your budget.
Make only the minimum payments on your other credit cards and focus on paying off the card quickly. For help budgeting, you might consider using a program like Mint.com which helps you track your income and expenses.
Opt out and close the card.
By law, credit card companies give you the option to opt out of an interest rate increase — but there’s a catch. You can close the card and pay off your existing balance at the current, lower interest rate. This can negatively affect your credit score, especially if you’ve had the account a long time, and should be a last resort.
Make sure to read your credit card statements every month so you won’t be surprised by a credit card interest rate increase and you can deal with it in a timely manner.