Credit card companies seeking to lower their risk have several ways to go about it, and they’ll be using every one of them between now and February 20, when the new laws go into effect.
Some consumers are being hit with lowered credit lines – sometimes lower than their outstanding balances. This triggers over-limit fees and causes panic in those consumers who are unable to pay the balance down below the new credit limit.
Others are seeing arbitrary interest rate hikes – which not only makes it much more difficult to pay down a balance, but causes their minimum payment to increase. This one can trigger panic again, because many consumers have been barely able to make the current minimum.
A third set of consumers, those who have contracts with credit card companies that lock in a rate until the balance is paid, are seeing their minimum payments rise. Again – panic. One gentleman who wrote to bankrate.com said that his minimum had been 2% and he’d been feeling proud of himself for paying more each month – $600. Now his new minimum is 5%, which is $1,200. He can’t handle an extra $600 per month.
Some credit advisors are saying that consumers should call their credit card issuers and try to negotiate. Apparently some have been successful with this and others have not. Does it depend upon your attitude when you call, the person who answers the phone, or your past payment history?
We don’t know, but it’s worth a try.
Most credit card issuers will allow consumers to opt-out of an interest rate increase by closing the account and continuing to pay at their old rate. This will, of course, eventually result in damage to the consumer’s credit score. It could result in immediate damage if the card issuer reports the available credit as the amount due. If they continue to report the original credit line and the current amount due, the credit score hit won’t come until the last payment is made and the account is closed.
But what can you do if your minimum is suddenly 2 ½ times what you’d been paying, and you don’t have the extra funds? If talking won’t help, the only alternative is to seek funding elsewhere and pay off the account.
In today’s economy, the best course of action is to pay down debt as quickly as possible, then re-work your budget so no more short-term credit is needed.