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Have You Checked Your Credit Card Interest Rate Lately?

Friday, December 7 2007

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One of the nasty surprises lurking in your mailbox may be a new credit card interest rate. You may be paying on time, and keeping your balance below the maximum, but your credit card interest rate may go up. I actually found this out the hard way with one of my cards.

My Chase card (the company now says it will discontinue the practice of jacking up rates based on credit scores) went up in its interest rate about a year ago. I still don't know exactly why; perhaps it was around the time we had a couple of credit inquiries for a large purchase and for satellite TV programming (yes cable and satellite companies now check your credit). But I had no late payments, and my balance was consistently low. I called and canceled, I was so peeved. But my experience is nothing like this, reported on Yahoo! Finance:

Most stunning, $3,478.39 out of $5,618 in payments had gone to Discover for interest accrued over the previous two years, Hard told the Senate Permanent Subcommittee on Investigations Tuesday. On a monthly level, about $176 out of her $200 payments went to finance charges. In the past year alone, Hard had paid $2,400 but reduced her debt by only about $350.

I haven't used a Discover card for years -- since I canceled the one I was suckered into getting as a college freshman. Now, I'm extra-glad it's gone. Never have I seen such a clear-cut example of why carrying balances on a credit card is a bad idea. It's why I try to purchase nothing that can't be paid off in two or three months (paying the balance off every month is by far the best way).

Even though Citi and Chase both say they will stop looking at other credit scores to determine interest rates after card terms are set (Capital One claims it stopped such practices, long, long ago), it doesn't change the outrageous rates they do charge. And, technically, they do let you know. Yahoo! Finance again:

Hochschild and other top credit industry executives told the Senate panel that card holders are appropriately notified of any changes, given time to opt out and pay off the card at the old rate, and to contact the credit bureaus whose reports may have spurred the rise in rates.

It is possible to get a lower rate from your credit card company, but the bottom line is this. It is in credit card companies' interest to keep you in debt. Not overly crushing debt that results in you failing, but in the kind of debt that keeps you making minimum payments (or a little more) each month so that you remain just financially viable enough to keep on paying.

The best thing to do is to get out of debt as fast as possible. This means using aggressive debt reduction to focus on one debt at a time, since bigger payments to one loan at time (while paying the minimum on the others) will do more good than smaller, above minimum payments on a variety of debts.

Tags: get out of debt, aggressive debt reduction, personal finance, personal finance blog,
credit card interest rate, lower interest rate credit card

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Latest Comments in Have You Checked Your Credit Card Interest Rate Lately? posts

Debt is a 4 letter word ...

It's awful when you realize how much money you pay in interest charges. I know it's there, but I don't even like to think about it, I just keep paying it. One day I will have it all paid off and my money will go to better things than padding the pockets of the already rich companies. I have a card that has a smaller balance than Ms. Hard's, but when I looked at it last month, I realized that I had only paid about $195 of the actual balance in the past 18 months. I will be heeding your advice on the aggressive debt reduction and get it paid off. An informed consumer should stay on top of their interest rates and what they are paying in charges. Its money that most of us could use and we are just throwing it away.