Senior Lookout
Even if you are a procrastinator, don't put this little chore off. The next time your credit card statement or any correspondence from your card issuer arrives in the mail, open it and check to see if your interest rate has increased and, if so, how much it will impact your credit or your ability to pay.
Whether because of the economy, or to avoid new federal regulations that are due to take place in mid-2010, many credit card issuers are opting to increase the interest rates that many of their customers pay, sometimes quite arbitrarily.
In quite a few cases, the increases seem to have little to do with the customer's behavior. One Gloucester resident, who states that she pays all her bills regularly and is never late, says that she opened her most recent credit card statement to find that her interest rate was being raised from 8 percent APR (annual percentage rate) to 14.99 percent. A quick Google search revealed that some consumers are complaining that they have been slapped with rates as high as 24.99 percent.
To put that in real terms, let's say that a consumer can afford to pay just $50 per month toward a credit card balance of $2,000. At 8 percent, it will take 47 months for that consumer to pay off the balance. At 14.99 percent, it would take 55 months, and at 24.99 percent, 85 months.
Many cardholder agreements now contain what is known as a "universal default" clause, which allows credit card banks to raise rates if you default or are late on a payment to another creditor, or even on your phone bill or car payment. They can also raise your rate if they feel that you have incurred too much debt (even if they were the ones who extended it to you), and they can do so retroactively on charges you have already incurred.
Legislation has been proposed to ban this practice, and to enact a "credit card holder's bill of rights," but, for now, if your agreement contains language permitting it, you have little recourse.
In many cases, card holders may "opt out" of the higher rate and close the account, or accept the higher rate. In certain situations, however, it may not be advantageous to close your account. Before you do so, make sure that closing the account will not negatively impact your credit score. If you do decide to close the account, send a written request that the company provide proof that your account is being closed in good standing.
If you have good credit, you may be able to avoid the higher charges by transferring your balances to a lower interest card, although you may just be staving off the inevitable as banks jump on the interest rate bandwagon in advance of the federal regulations. If you have savings, it might be advantageous to take a passbook loan at a lower rate and pay off the balance, or even take out a personal loan to do so.
In an effort to avoid doing business with companies such as Citi, Chase and Bank of America, which have recently raised rates (allegedly even on consumers whose payment history is exemplary and even after receiving "bail out" money from the government), many people are rediscovering credit unions.
Credit unions are organizations whose mission is frequently expressed as "people helping people," according to Pat Pollard, Senior Vice President of Marketing for Metro Credit Union (www.metrocu.org). Metro is a non-profit community based credit union that anyone living in seven counties in eastern Massachusetts may join with as little as a $5 deposit to a savings account.
For eligible borrowers, Metro's Visa Gold card accounts carry an APR of 12.9 percent, no annual fee, and have a cash back rewards program. Again, for eligible borrowers, a loan on a 2006 model used car, for example, might be had for an APR as low as 5.7 percent for 60 months, and a new car loan for an APR of 5.15 percent for 60 months.
Deposits to Metro are insured up to $250,000 by the National Credit Union Administration (NCUA), backed by the full faith and credit of the United States government. Ms. Pollard, when asked if Metro had experienced an uptick in membership interest of late, since people have started opening and examining their credit card statements to see if they have been assessed a higher APR or additional fees, stated, "Oh yes. We also have a lot of inquiries about mortgage and auto refinancing, too."
At any rate (no pun intended), it's important these days to pay attention to your credit card statements, understand how an increase in your interest rate will affect your ability to pay or the length of time it will take to pay, know your credit score, be aware how your decisions will impact your score, and take steps to protect your financial future. Even if you pay by direct withdrawal, don't just set that statement aside — open it!
Anne Springer is the public relations director of SeniorCare, Inc., your local Area Agency on Aging. To reach SeniorCare, call 978-281-1750.
