Credit Card Rate Soaring? What to Do
Learn to shop for better credit cards the smart way.
April 13, 2009 — -- Bank of America is the latest bank to announce that it plans to raise interest rates on some credit card accounts. B of A says the move will affect 4 million cardholders -- less than 10 percent of its card customers. Basically, people who carry a balance and currently enjoy a rate of less than 10 percent will see their rate rise.
Citigroup, JP Morgan Chase and American Express had already announced similar moves. You may recall that the Federal Reserve created new rules that will protect cardholders from some interest rate hikes, but those rules don't go into effect until next year. Congress is considering legislation that would impose similar rules sooner, but it's still winding its way through the House and Senate.
So, it's self-reliance time. Here's what you do.
If you receive a notice saying your bank is raising your credit card interest rate, call the customer service number and opt out. Sounds liberating, but there's a catch. You won't be able to use your card to make any new purchases. If you have had the card for many years, you should keep it open because longstanding accounts are good for your credit score. Pay down the balance but don't make any new charges. New charges trigger the new, higher interest rate. If you haven't had the card long, just cancel it. Pay off the balance or transfer it to another card.
There are still banks out there offering zero percent introductory offers for balance transfers. Just be prepared to do some fancy footwork if you are about to do the introductory rate dance. This is a dicey proposition, but it can be done.
Basically, you transfer your balance from one card to another as introductory rates expire. The key is finding cards that offer a low rate, a long introductory period and few fees.
Some credit card companies charge you so much to transfer balances that it wipes out the benefit of the low interest rate. Read the fine print. Make a note on your calendar of when the introductory rate expires and switch to another card before it does. If you fail to transfer before the higher rate kicks in, the bank will charge you that rate on your entire existing debt.