Frustrated Over Credit Card Hikes?

Paid on Time? Too Bad!

Credit card interest rates are going up. Has your bank dropped the bomb on you? (Photo: wilpf.org)

Credit card interest rates are going up. Has your bank dropped the bomb on you? (Photo: wilpf.org)

If you have been relying on credit cards to get by each month, you may need to borrow money just to pay the minimum payment these days. Credit card companies are raising interest rates dramatically in an effort to stay ahead of the declining economy. But the problem is that they are not just doing this to those who have had problems paying their bills on time, but those who have always paid on time. Does this seem unfair to you? Yes, but the cold reality is that people who have had their credit cards for 10, 20 or even 30 years, with previous interest rates at about nine percent, are now getting slapped with rates over 20 percent!

Is This Legal?

Yes, because the fine print in your agreement that you signed when you first accepted your credit card states that they can raise your rates at their discretion. But it will not be for long, because the new rules affecting their behavior, known as the Card Act of 2009, will not take effect until August, 2010. Regardless of your personal situation, even if it hasn’t changed, the overall financial environment has changed, creating more risk for banks and credit card companies. If they spread out the risk, they can limit their losses on those who default on their payments.

Shouldn’t I Be Notified?

Currently, banks do not need to give you more than 15 days to let you know that your rate will be increased, and what you can do about it. Did you miss this notification? You probably did, as they put this in your monthly statement, or even in a separate envelope that you may mistake for junk mail and throw it away. You have a chance to decline the new rate and continue paying off your bill, but if you miss the deadline, you will be stuck with the new rate. After August, 2010, you will get at least 45 days notice, which should help you actually see it.

My Rates Increased – Now What?

The ideal situation is that you catch the notification before the deadline and call your bank right away to let them know that you decline this new rate. If you opt out of this new rate, they will close your account, but you will continue paying off the balance at the lower rate.

However, if you miss the deadline, another option is to pay off any balance that you owe and close your account. You can possibly borrow money at a lower rate than what your credit card is currently at to pay off the balance and save yourself thousands of dollars in interest rates.

Or, if you want to keep the account open, transfer the balance to a lower rate card. Be sure to check your credit on your other card first, as well as what the balance transfer fee is. If you are not careful, you may end up paying more in fees doing this, than if you were to accept the changes and keep your account open.

Plan Ahead

The best route to saving money in the long term is to plan ahead. Before you borrow money to pay off your high credit card debt, create a budget that shows where your money will go and when. This way, you know exactly what to count on. Of course, creating a budget is only half the story—you must stick to the budget you create, so that you will have no need for credit cards or high interest loans in the first place.

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