When Paying Your Bill on Time Isn't Enough

Tommy Newsom believed he had done everything right.

Each month he paid his Bank of America credit card bill on time. The balance was relatively high -- about $5,000 -- but he paid at least the minimum due. Then earlier this year, he received a letter from his credit card company.

"They were going to double the interest rate on my credit card, and that upset me," he said. "Because there didn't seem to be, in my mind, a legitimate reason for doing that." Newsom's interest rate went from 14 percent to 28 percent, which increased the monthly minimum payments.

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"It makes a difference, $40 or $50 more," he said. "We watch what we do closer than we had. We live paycheck to paycheck."

Newsom is the sole breadwinner for his wife and grandson, having worked 47 years at the same private electricity company outside Dallas. But there were unexpected expenses that put his credit card to use more than he would have liked.

"In a two-year time frame we went through five operations in my family, and obviously I had a lot of medical bills. And what free money I had went into medical payments and some of the things I might not necessarily charge, I did charge," Newsom said, "and ran up the balance higher than I would have liked. Because I was just trying to pay off the medical balances and had to use the credit card quite a bit."

Newsom called Bank of America looking for answers.

"Essentially, what they finally told me was the rules allow them to do it, so they were going to," he said. "Period."

Newsom was given the chance to "opt out" or close the account, but at the time he was not in a position to do so.

"It was tied to my overdraft privileges at the time and to do so, I would have lost those privileges and would have had to go to another bank," he said.

The increase in the interest rate meant he was able to pay off only the minimum amount each month. He has not been able to lower the original balance. In the last 10 months, he's paid about $1,600. But the balance remains near $5,000.

"You feel like you are at the bottom of a bottomless pit, and you are trying to crawl your way out of it, but there's a long way to go," he said.

Bank of America would not comment directly on Newsom's case but sent "Nightline" a statement that reads, in part: "We do periodically review the credit risk for each account and may reprice individual accounts based on that risk assessment. That review takes into account a customer's performance with us as well as external credit risk indicators."

Weakened Economy, Mounting Pressure

Newsom, like many credit card holders, is finding increased interest rates, lower credit limits and changing fees. Americans on average have $8,000 in debt and own seven or eight credit cards. The total amount of consumer debt is close to $1 trillion. This is coming at a time when the mortgage crisis and unemployment have pushed people to the financial edge.

"The economy has weakened. The mortgage crisis has weakened the economy," said Scott Talbott, a lobbyist with Financial Services Roundtable, which represents 100 of the nation's largest banks. "You see a lot more unemployment, so there is a lot more risk in lending now. And so credit card companies are responding to that risk by increasing rates for some Americans and decreasing lines of credit for others."

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