Overview

A common concern for people considering balance transfers is how a balance transfer will affect their credit score.  I wrote a detailed article on balance transfers and credit scores recently, but ultimately, there is no concrete answer to this question.  Nevertheless, there are a few general rules a person can follow to limit any negative effects a balance transfer could have on your credit score and even improve your credit score.  First, however, we’ll start with the negatives. Continue Reading »

Because no one really cares about credit cards until something horrible happens, you’ve probably missed out on the growing discussion posted on this blog last year, aptly titled Bank of America Raises Interest Rates.  Beginning this weekend, I started receiving a slew of comments from angry consumers who had low fixed rates ripped from underneath them.  Today, the mainstream media caught up, with an article on Bank of America’s credit card increases appearing in the Wall Street Journal. 

According to the Journal, Bank of America is raising rates on consumers with interest rates of less than 10% or forcing them to close their accounts.  The degree of increases varies, but can be quite substantial.  A visitor of this website, posting as Pissed at BOA, told us that Bank of America raised his rate from a fixed 7.9% rate to an astronomical 23.65%.  When he contacted Bank of America, he was told the reason behind his rate increase was, “not a reflect(ion) of you or your credit history with us or others and it is due to the current economic conditions.”

The latest round of interest rate increases from Bank of America should give everyone with credit card debt, not just Bank of America cardholders, reason for concern.  However, as I’ve told many rate increase victims, having a surprise rate increase can work to your advantage, as long as the proper steps are taken. 

What you should do when your interest rate is increased

1.)  Transfer your balance to a 0% credit card:  Many people with double digit interest rates never even consider balance transfers.  However, 0% balance transfers can work miracles for consumers by saving them hundreds of dollars in yearly interest.  This provides an opportunity to reduce debt substantially without compounding interest expenses.  On the average, a person with a 14% interest rate can save over $100 a year for every $1,000 transferred to a 0% credit card.  For a person with $5,000 in debt, that can translate into over $500 in interest savings during one year.  If you aren’t using balance transfer credit cards to pay down credit card debt, you should be. 

Click here to review balance transfer offers on this site and apply online

2.)  If you can get approved for a 0% balance transfer, keep your old credit card account open:  Closing credit card accounts can have huge, adverse affects on your credit score for a variety of reasons.  First, closing a credit card account without opening a new one reduces your available credit.  This, in turn, increases your credit utilization ratio.  Credit utilization ratio’s account for 30% of your credit score.  Thus, if you had $2,000 in debt and $5,000 in total available credit, your utilization rate would be 40%.  However, if your available credit is cut to $3000, you’re now using close to 70% of your available credit.  This can lower a person’s credit score by dozens of points, thrusting people with good or excellent credit into the average credit category.

A second credit score problem caused by closing accounts is the shortening of your credit history.  If, for example, the credit card you close had been open for years, closing it will reduce your active credit history, another issue that can lower your credit score.

Click here to view free credit score analysis tools

3.)  Pay down as much credit card debt as possible:  While easier said than done, paying down credit card debt is truly the only way to protect yourself against predatory credit card lenders.  While today’s spotlight is on the Bank of America interest rate increases, just about every major credit card issuer has been raising interest rates lately.  Visitors have been posting about sudden rate changes from Chase, Capital One, HSBC, and American Express for months now on this blog (see credit card complaints here).  Call me pessimistic, but I think the worst has yet to come.  As consumers, the best defense is to limit your exposure to the whims of our banks.  And the only way to do that is to lower your credit card debt. 

Final Thoughts

Having your interest rate increased can be a nightmare, but it can also put you on the path to getting out of credit card debt if proper actions are taken.  If Bank of America raised your interest rate, turn your anger into action.  Do a 0% balance transfer and start paying your debt down immediately.  Don’t be a passive victim; be a smart consumer.  And, as our website implies, do a smart balance transfer.

To kick start the process of getting out debt, visit the balance transfer credit card section of this website where you can compare current 0% balance transfer offers and apply online.

If you’ve been the victim of a Bank of America interest rate increase (or any bank’s rate increase), please share your experience by leaving a comment.  Your postings are anonymous and help us keep the public informed.

If you’re looking for a good scare, there’s a new credit card debt payment calculator available from the Federal Trade Commission.  This tool, while useful, actually underestimates the horrors of getting out of credit card debt.  The issue with this credit card debt calculator is that it makes some bold assumptions that ultimately underestimate both the time and the cost of getting out of debt.

For example, using the FTC calculator, a person with $10,000 in debt on a credit card with a 14% interest rate will spend $2,996 in interest and need NINE YEARS to pay off their credit card debt.

Unfortunately, the reality is much worse, especially if a person only pays the monthly minimum.  One reason for this is the assumption that a person will make equal payments of $500 per month, every month, for NINE YEARS and make no new charges.

In reality, most people will have a hard time coming up with $500 per month, especially if they are only required to pay 3% of the balance.

As disheartening as it may seem, it could take a person much longer than a DECADE to pay off $10,000 in credit card debt and the interest expense could easily be $5,000 or more.

That, dear reader, is the sad and unnerving truth. 

Now, please don’t let this scare you.  Facing credit card debt is scary, but necessary.  And there are steps a person can take to reduce interest costs, especially in the short term.  As the title of this website implies, making smart balance transfers can help REDUCE the COST of repaying credit card debt and REDUCE the TIME it takes to do so.

Here’s an example, using our balance transfer calculator, of how a person with $10,000 of credit card debt at a 14% rate can get out of debt with less pain and lower expenses.

Step 1:  Transfer you balance to a credit card that offers a 0% APR for 1 year.  While this will incur a 3% fee equal to $300, you will save over $1400 in interest over the course of one year.  Once the fees are subtracted, you will have a net savings of over $1,000 during the next year.

If you pay $500 a month during the next year, your balance will be reduced to $4300 by the end of the year.  You’d be halfway home already.  Even if you only pay $400 a month, you’ll still eliminate close to half your debt in one year.  Not nine.

Step 2:  At the end of 1 year, transfer your balance to a different card that offers a 0% interest rate.  This, unfortunately, was much easier to do during the past few years.  However, people with very good credit may be able to do this.  So, assuming you can get another year with no interest, you’ll only need to pay $400 a month and voila, you are out of credit card debt in two years.

Now, because it may be difficult to get a 0% rate next year (or perhaps next month), lets assume you now have $4500 in credit card debt at the same 14% interest rate.  Using the FTC debt calculator, it will still take 8 years and cost over $1300 in interest to get out of credit card debt.  However, this assumes a monthly payment of only $225.  If you pay down your debt by $400 per month, you’ll be free of credit card debt in about a year and a half.  Add in the year with the 0% APR, and the total time to get out of $10,000 in credit card debt is under three years.  That’s a lot less painful and expensive then nine years.

0% balance transfers are an essential tool for consumers looking to get out of debt.  Unfortunately, credit card companies are making it tougher to get 0% rates every day.  However, if you act quickly and apply for a balance transfer credit card today, you can save yourself a lot of money, a lot of stress, and a lot of time.

Credit card debt can be nightmare.  Belive me, I’ve been there.  And I’ve gotten out.  In the past five years, I’ve helped a lot of others as well.  If you’re reading this, you’ve made the most important step:  you’ve faced your credit card debt situation head on.  The next step is to get it under control.  And the place to start is with a 0% balance transfer.  You can view details of these offers, apply online at our website, and start the process of getting out of debt today. 

For additional information on current balance transfer options, please see the 0% balance transfer comparision section of Smart Balance Transfers.

For better or worse, I’ve been in the credit card industry for five years.  During most of that time, consumers had a wide range of low fixed rate and 0% interest offers available to help them get out of credit card debt.  However, during the past six months, just about every credit card company has made it more difficult for consumers to obtain these rates.  In my opinion, things will continue to get worse for consumers with credit card debt before they get better.  I’ve been writing about this for quite some time, and if you take a few minutes to review some of the older posts on this blog, you’ll see that I’ve been right most of the time.

Unfortunately, consumers actively trying to reduce their credit card debt have a lot less options today than they did one year ago.  The reason for this is quite simple:  no one wants your debt.  Last year, banks fought over new customers, offering 0% rates that lasted for 15 months, no fee balance transfers with 0% rates that lasted a year, and fixed for life rates as low as 2.99%.  Today, those lucky enough to get approved for a new credit card can still get a 0% APR for a full year.  However, qualifying for these offers is getting more difficult by the day and, in the very near future, 0% balance transfers may not be available at all.

If you are serious about getting out of credit card debt, the first step is to apply for a credit card that offers a 0% APR on balance transfers for 1 year (you can compare offers here).  With a 0% interest rate, a person with $5,000 in credit card debt with a 14% interest rate can save close to $750 in interest charges alone.  And, although standard 3% balance transfer fees will reduce total savings to $600 for a year, the money you save on interest can be used to pay down your credit card debt instead of paying down newly accrued interest charges.

Failing to take action to reduce your credit card debt will only make matters worse.  If, for example, you chose to start getting out of credit card debt one year ago, you could have moved your high interest balance to a credit card with a 2.99% fixed interest rate for life.  Today, that is not an option.  Tomorrow, getting a 0% rate for a year may not be an option.  And as these options disappear, credit card companies continue to raise interest rates on consumers with good credit and long histories with their company.

The behavior of credit card companies towards consumers is utterly abhorrent.  Sadly, however, any person with credit card debt is at the mercy of their credit card company.  If you are reading this, then you are taking a step in the right direction.  The next step is to apply for a balance transfer credit card and secure a 0% rate while you can.  Otherwise, you may extend the time you spend in credit card debt hell even longer. 

For additional information on available 0% balance transfer offers, please see the appropriate section of this website.

Should you have any questions or comments, please feel free to leave a comment below or contact me directly.

I congratulate you for taking steps to get out of credit card debt, and hope my plea encourages you to take action.

Hidden deep in the fine print of most credit card applications is a number so obscene, its hard to believe it exists.  The number I speak of is the default rate, and if you are slapped (or perhaps, punched and kicked) with this interest rate, paying back your credit card can become a nearly impossible task.

Before we get into the NC-17 rates, we’ll first look at a few ways a person could end up in credit card default hell.  The standard line, as taken from a Chase credit card application, goes as follows:

“Your APRs may increase if you default on this account for any of the following reasons: We do not receive at least the minimum payment due by the date and time due; you exceed your credit line, if applicable; or you make a payment to us that is not honored by your bank. Your APRs may increase as of the first day of the billing cycle in which the default occurs. We may consider the following factors to determine the default rate: the length of time your account has been open; the existence, seriousness and timing of defaults; other indications of your account usage and performance; and information about your other relationships with us, any of our related companies or from consumer credit reports.” Source:  https://www.firstusa.com/cgi-bin/webcgi/webserve.cgi?page_type=appterms&card=C9YH

In a nutshell, the disclaimer above states that if you miss a payment, you can have your interest rate raised to what is often the highest rate allowed by law.  As of April 2nd 2009, here are the default rates for major issuers:

Chase:  Default APR up to 29.99%

CitiBank:  Default APR 29.99%

Discover:  Default APR 29.99%

And I guess you get the picture.  If you are in danger of credit card default, you must act as quickly as possible to avoid it.  Using a credit card calculator at the FTC, I learned that a person with a $5,000 credit limit paying a 29.99% interest rate will need 12 years to pay off their debt if they only make the minimum payment, and the total interest will add up to $4900.  Essentially, you’re looking at a doubling of debt very quickly.

While banks and credit card companies have been loath to help consumers, often doing everything they can to push them into default, if you get hit with a default rate, you should try to contact your credit card company and work out a payment plan.  You could also try transferring your balance to a new card.  However, you may not get approved for a balance transfer if your default account has been reported to a credit agency.

A third option is to contact a credit counseling service.  This can be a dicey proposition, as there are both good and bad companies in this arena.  Because of this, we do not recommend any particular credit counseling service.  However, we do have a few tips on companies to avoid.  For instance, any company that offers to get your debt reduced should be considered dicey.  For the most part, a good credit counselor will work with your creditors to get your interest rates lowered substantially.  This can help you save thousands on interest without wiping out your credit score.

Ultimately,  falling into credit card default can be a nightmare that can take years to unwind.  However, it is possible to pull oneself out of this whole with quick, decisive action.