One non-pleasant result of government mandates changes to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act is increasing credit card interest rates. Some of the nation’s largest credit card companies are sending out letters to their customers announcing changes to their terms makes it even more important to pay down credit card debt while also making it more difficult to do so.
Since the new rules will cut some of the profits formerly collected by credit card issuers, they will take advantage of changes to your account that they can make now to safeguard their profit margin. For instance, many fixed interest rate accounts are being switched to variable interest rate accounts. A variable rate is based on prime interest rate plus a percentage. Prime is currently set at 3.25% according to the United States Federal Reserve.
A practical example: If your credit card account has carried a fixed rate of 9.99% and your card issuer switches to a variable rate of prime (3.25%) plus 8.74%, your new interest rate will be 11.99%. Since it is a variable rate, each time there is a change to the prime rate, your credit card interest rate will be changed.
If you receive a letter from your bank, be sure to read it completely. If you do not understand the implications of changes, be sure to call to ask for clarification. Here are three options to consider if you do receive notification of rate changes.
1. Reject the rate increase. If you do this, your account will be cancelled and you will no longer be able to use the credit card or account to make purchases, cash advances, or balance transfers. You will be obligated to pay off any existing balance as per the terms in effect on the date you received the notification.
2. Apply for a new credit card with more advantageous interest rates.
3. Accept the rate change, try to keep the balance paid off and use it only when absolutely necessary.
