debt

Lose high rates, not credit cards

Steve Bucciq_v2.gifDear Debt Adviser,
My credit is in the "good" range and I have been current with payments on all credit cards. However, one credit card bank is charging me 30 percent interest, and they will not work with me to reduce it. I incurred the charges and want to pay the bill but am tempted to just walk away from that one card. I don't think I'm eligible for debt counseling because I don't want to include any of my other creditors, just this one. Would it make sense to walk away from this one card or keep trying to get them to come down on the interest rate?
-- Kathy

a_v2.gifDear Kathy,
Your letter reminds me of the classic Simon and Garfunkel song, "50 Ways to Leave Your Lover." There are a lot of ways to deal with a toxic lender, but walking away isn't one of them!

As tempting as it might be to stick it to a bank that won't cooperate, it would only cause a multitude of problems for you. If you were to stop paying on your one account that has a high interest rate, here are a few of the consequences you'd likely encounter. First, your credit would most likely move out of the "good" range into the "fair" range or worse.

Second, because most credit card agreements include a universal default clause, your other credit card accounts would likely raise your interest rates to 30 percent because of your default on the one account. Then your cost to get out of debt would increase considerably.

So, before you "walk away, Renee," I mean Kathy, here are some suggestions that would work much better for you to keep your credit in good standing and allow you to pay what you owe. The first thing you might consider is moving your balance to another credit card with a more reasonable rate. Because you have good credit, you should qualify for a balance transfer. Many credit card issuers are offering low interest rates for balance transfers. Before you make the change, be sure to review the cardholder agreement carefully and ensure that the terms are acceptable to you and there are no hidden fees. If the balance is substantial, you may want to move to more than one card. This allows you to keep your balance below 50 percent of the maximum credit limit. Once you go over 50 percent, your credit score can be affected negatively.

If you are in a sporting mood, you might give your existing lender a last try. Let them know you are committed to paying what you owe, and that you would like to continue your relationship with them but cannot afford the 30 percent interest rate. Let the customer service representative know you are prepared to move your balance to another card but say that you prefer not to. Ask whether or not the bank would like to earn the money on a reasonable interest rate for the months that it will take you to pay the balance. I suggest you ask for a supervisor, then a manager and see if climbing the corporate tree will bear some fruit. Always be polite and thank them for their (non) help before you ask for the next level. Be prepared to negotiate a new rate, and keep in mind they might not offer the ideal rate, but might offer one for which you would be willing to settle.

Should your current card issuer be unwilling to give you what you want, then you'll need to move the balance. If you don't want to or can't transfer the balance to another credit card, you could consider a signature, or unsecured, loan from your bank or credit union. My last suggestion is to concentrate on paying this card off as fast as possible with larger than required payments and then tell them to take a hike once the account has been paid off. Just don't cause more problems for yourself by walking away from your obligation.

Good luck!

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