How To “Opt Out” Of A Credit Card Rate Hike

February has been a month of change, yet not the type that the average credit cardholder needs. Credit card lenders have spent the month advising tens of millions of customers across the U.S. that their credit card interest rates are about to change. 

EXPECT DEFAULT INTEREST RATE INCREASES BY MID-MAY

Across-the-board increases in interest rates are occurring and may prove to be a death blow to the finances of those Americans who are in debt and have lost their jobs.

The good news – if there is any – is that not all of the increases are effective immediately.

The typical letter being mailed tells the credit cardholder that his interest rate is going up in around 90 days, or around the middle of May, 2009. So those cardholders still may have time to formulate an escape plan.

 Also, purchase rates – and the balance carried on the purchase segment of their credit card accounts – will not necessarily be affected, or not right away.

Most of these notices are informing credit card customers that their “default” rates are going up.

HOW TO RESPOND

 Options at this point are limited for most credit cardholders who are carrying balances.

 When a credit card company doubles the rate on the balances it is carrying for a customer, that’s a signal that it’s no longer worried about losing that customer.

As a result, it is unlikely that such a customer will be able to call and negotiate his way back to a lower rate, although certainly he should try. However, even should he get the new rate “lowered,” it is likely to still be higher than the rate he was paying before these changes began.

 Most credit cardholders will need to pick one or more of the following options.

• Pay off as much as possible using savings and/or other assets.
• If possible, transfer high interest balances to low-interest accounts.
• Choose to “opt out” of the new terms.

HOW TO “OPT OUT” OF THE RATE INCREASE

When a credit cardholder’s rates are scheduled to be raised, he will, typically, be given an “opt out option” which will allow him to freeze the balance on his credit card account at the “old” or existing rate that he had been paying.

This, however, requires that the account be closed for all other purposes except repayment.

Also, the credit cardholder must “opt out” BEFORE the date upon which the rates are going to change.

So, to opt out of the rate change, he must agree to have his account closed and pay down his balance at the old rate.

Once his rates have been raised, however, it is too late to exercise this option.

FINAL RECOMMENDATION – CONTACT CONGRESS

 Every credit cardholder affected would be wise to write to his Congressional representative with these requests: 1) that the credit card reform legislation slated to go into effect in 2010 be made effective immediately, and 2) that the interest rate increases being implemented as of January 2009 be rolled back.