February 2009 has been a month of change, but not the type that the average credit card holder needs. Credit card lenders spent the month informing tens of millions of US customers that their credit card interest rates were about to change. This article discusses these rate changes and available options for the credit card holder having a balance.
EXPECTING AN INCREASE IN THE INTEREST RATE FROM HERE TO MID-MAY
The widespread increase in interest rates could be a fatal blow to the finances of millions of indebted Americans who have lost their jobs. One could argue that for American corporations, betraying the American people in this way, when taxpayers are called upon to bail out some of the world's largest and richest financial institutions, is not only useless, but also unpatriotic .
However, no hyperbole is needed to know that these increases are bad news for the cardholder who is carrying a balance. The good news – if there is one – is that not all increases are effective immediately.
The standard letter informs the credit card holder that their interest rate will increase in about 90 days and, for many, by mid-May 2009. It is therefore possible that these cardholders will still have time to formulate a credit card. escape plan.
Second, the purchase rates – and the balance reported on the purchase segment of their credit card accounts – will not necessarily be affected, or not immediately. Most of these notices inform credit card customers that their "default" rates are rising.
MORE "DEFECT RATE" BRUTAL
All customers do not understand what is a "default" rate, or that not all credit card accounts have a default rate.
For accounts that have a default rate, it is best to describe it as a penalty rate. Higher than the rate the customer paid, this is the new percentage at which the interest rate on an account "defaulted" when the cardholder violated the terms of his credit card agreement.
Being late with a payment twice a year is an example of what has once pushed an account to automatically apply a default penalty rate. Since these defaults are increasingly brutal – they can range from 25% to 30% per year or even more – compliance with credit card payment deadlines is now a matter of survival.
WHAT TAKES A DEFAULT RATE
As a general rule, an event that causes a penalty may trigger the default rate. These events include the delay with a payment or exceeding the credit limit of an account. And, although some account terms state that there must be two such incidents in an interval of 12 months, other accounts only require one.
EXAMINE YOUR DECLARATION OF CHANGES
However, the default rates are not the only ones to be changed. Millions of customers whose accounts have a 7% to 8% APR in recent years also see their rates increased. As a rule, the rate is doubled.
There are three credit segments (purchases, balance transfers, cash advances) on each credit card account and, in most cases, three different interest rates: purchase rate, balance transfer rate and discount rate. 'cash advance.
The interest rate on all or part of these segments may be affected by these generalized increases. One or more of these three may adopt a higher rate if there is a "default rate clause" in the cardholder's terms that an event, such as a late payment, triggers .
HOW TO RESPOND
At this point, options are limited for most credit card holders.
When a credit card company doubles the rate of the balances it holds for a customer, it is a sign that he's no longer worried about losing this client.
As a result, it is unlikely that such a customer could call and negotiate to return at a lower rate, although it should certainly try. Be aware, however, that even if he gets the new "reduced" rate, he will probably still be higher than the rate he paid before these changes began.
Most credit card holders will have to choose one or more of the following options, described in more detail below.
- Reimburse as much as possible by using savings and / or other assets.
- If possible, transfer high interest balances to low interest accounts.
- Choose to unsubscribe new terms BEFORE they come into effect.
In addition, each credit card holder concerned would be well advised to write to their Congress representative with these requests: 1) that the legislation on credit card reform to come into force in 2010 be put into effect immediately, and 2) interest rate increases effective January 2009 be rescinded.
PAY as much as possible
Obviously, it's best to pay off your credit card balance before the new rate comes into effect. For those who have balances, but who have savings with which they can pay these balances, the advice is to pay off the debt.
Even though it's scary to give up a nest egg in these economic times when layoffs are increasing, it's a good thing to do when you have to get out of an interest rate of 15 to 30%, as this reduces the cost of life. For those who do not have savings, but may have other assets convertible into cash, again, it is advisable to do everything necessary to get out of the bully.
And, as independent as we would like to be American, it might be time to downsize and / or share the living space to reduce housing costs and then use the savings for free the debt.
TRANSFER OF BALANCES OF HIGH PERFORMANCE BALANCES
This is not the panacea that it once was. Although it is possible to find a promotional offer at 0% over six months or a year, it may result in an initial balance transfer fee that goes against any economy. Credit card holders must take out their calculator and perform calculations to determine if a balance transfer makes sense, as it is an interim measure that saves time, nothing more .
The credit card holder who gets an outstanding offer should expect that a heavy shoe will fall after the promotional period expires. In fact, the non-promotional interest rate may be higher than the one at which the credit card holder has escaped. In addition, if he is late with a payment or exceeds his limit during the promotional period, his rates can be increased dramatically with only 15 days notice.
Once the balance is transferred, the credit card holder must tidy up the card and not use it, unless there is a penalty clause for non-use of the card. If it is necessary to make at least one purchase per month on a card, it is advisable to the owner to mark his calendar and, once per billing cycle, to use the card to buy a cup of coffee so to circumvent the penalty.
The number one goal for the credit card holder during this time is to do everything in his power to pay that balance before the rate is increased.
"EXTENSION" OF RATE INCREASES
When a credit card holder's rates need to increase, he is usually given a "withdrawal option" allowing him to freeze his credit card account balance at the "rate" or rate that exists at that time. He had paid before. .
This requires, however, that the account be closed for all other purposes except the refund. In addition, the credit card holder must "withdraw" BEFORE the date on which the rates will change. If he withdraws the rate change and accepts that his account is closed, he will then be able to repay his balance at the previous rate.
Once its rates have been increased, it is too late to exercise this option.
Credit card lenders are raising interest rates for tens of millions of credit card holders in the United States. Interest rates that may be allocated to a cardholder's account may include any or all of the following: purchase rate, balance transfer rate, rate of Cash advance and / or default rate. Most of these increases will be in place by mid-May 2009.
The options available to credit cardholders with balances appear to be limited to: 1) repaying their balances as much as possible before the new interest rates come into effect, 2) trying to save time to refund their balances with interest low promotional balance transfer offers, and 3) "unsubscription" of the new rate in exchange for closing the account and paying the balance at the last prevailing interest rate.
Nothing, however, prevents the knowledgeable owner from combining his strategies. He can transfer a balance on an existing low-rate card (non-promotional) and then decline the rate increase on that card, provided he can do both before the effective date of his new rate.
It is also advisable for credit card holders to write to congressional officials to ask them to legislate immediately a law on credit card reform, which should come into effect in 2010, and to cancel them. interest rate increases in 2009.