After a brief pause, and right before new laws to limit interest rate increases take effect, Citibank appears to have raised interest rates on a wide range of its customers.  Over the past weekend, close to a dozen people posted on Smart Balance Transfers about monstrous rate increases that lifted APRs to 29.99%.  Fortunately, if Citibank raised your interest rate, there are easy steps you can take to lessen your financial pain

Option 1:  Opt Out and Open a New Credit Card Account

Unless you have the ability to pay your credit card balance in full, the best way to deal with an interest rate increase notice is to opt out by closing your account.  This will allow you to repay your balance at the current rate, ultimately saving you hundreds, if not thousands of dollars in interest expenses.  If, for example, you carry a $10,000 balance on a Citibank card with a rate that is moving from 15% to 29.99%, you will save around $1,500 in interest by electing to opt out.  This is a no brainer.  Don’t over-think it.  Get on the phone right now and opt out.

Unfortunately, opting out of a rate increase not only reduces your available credit, it also increases your credit utilization ratio (the amount you owe as a percent of your available credit).  Credit utilization ratio’s account for about 30% of your credit score, so closing an account can dramatically lower your credit score.  This is a problem, but not an insurmountable one.

Essentially, the best way to limit the damage an account closure will have on your credit score is to open up a new credit card immediately-as in, right now.  By opening a new account as soon as possible, you will increase your available credit, which will decrease your credit utilization ratio and thus increase your credit score.  More importantly, however, opening a new credit card account before Citi reports the account closure to the credit bureaus will dramatically increase your chances of getting approved.  Once your credit report is updated, your score will likely drop, significantly decreasing your chances of getting approved for a new card.

To compare current credit card offers and apply online, you can review credit card applications in the main section of Smart Balance Transfers.

Option 2:  Get on the Phone with Citibank and Fight Your Rate Increase

Before the credit crunch, most credit card companies were willing to negotiate rate increases.  Today, they are much less open to negotiation.  Consequently, success rates can be relatively low.  However, if you want (or need) to keep your account open, call customer service and ask for a U.S. based representative.  Then ask to speak to their supervisor.  If the supervisor can’t help, ask to speak to his or her supervisor.  If you have no luck, retry the process four or five times.  Fight the urge to take your anger out on the reps-its not their fault, and you may get lucky.

Option 3:  Do a 0% Balance Transfer

If you have good credit, you should be able to qualify for a credit card that offers a 0% interest rate on balance transfers for 6 to 12 months that will have a much lower long term interest rate than 29%.  Unfortunately, consumers with $15,000 or more in debt may have a hard time getting a big enough credit limit to transfer all of their debt.  However, if you have a few thousand dollars in credit card debt, you should be able to get a 0% balance transfer credit card with a high enough credit limit.

Option 4:  Get a 2nd, 3rd, or 4th Job

Sleeping and spending time with family is over-rated.  Why not just work 18 hours a day and hand over whatever money you don’t pay in taxes to bail out Citibank directly to Citibank to cover your higher interest expenses?

Option 5:  Part with a Kidney

Sure, kidney’s are vital organs.  But doesn’t keeping both kidney’s makes you just as greedy as Citibank?  Why not sell one and give the profits to Citibank?

Final Thoughts:  Okay, maybe there are only three good options.  However, accepting an interest rate increase is not one of them.  The key to successfully dealing with a rate increase notice is to act swiftly to insure options four and five never enter your mind.

Note to Readers:  Please consider sharing your methods for dealing with Citibank interest rate increases with other visitors.  All information you post is anonymous and your insights can go a long way in helping others deal with this troublesome situation.

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