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 Dear
Debt Adviser,
I was out of town and late on a credit card payment. The rate went from 8.9 percent to 29.9 percent (paid amount due immediately when I received the next statement). The credit card company said that I have to wait six months to try and negotiate a lower rate. Is this true?
-- Peter
 Dear
Peter,
They sure saw you coming! It sounds to me as though you have an aggressive lender who was looking for someone who doesn't pay attention. Talk about robbing Peter!
Peter, your predicament gives me an excellent example of what I tell people all the time: Missing one payment, yes, even one, can mean nasty things for your account. Not only the account on which you missed the payment, but maybe other accounts as well!
What happened in your case is that the very nice rate of 8.9 percent jumped a full 21 points to a naughty 29.9 percent due to one careless mistake -- being late on a payment with a not-so-hot excuse that you were out of town. Plus, you compounded the mistake by waiting until the next statement arrived to make a payment instead of getting one out as soon as you returned. How does this translate into dollars? If you pay your balances in full each month, not much. If you carry a balance from month to month, how about more than $1,500?
Let's say your balance on this account
is $5,000 and you can afford a payment of $250
per month. At your nice rate of 8.9 percent, $37
of that payment would go to interest and $213
would go toward the balance. If you maintain the
$250 per month payment, you'd be debt-free in
22 months. But at the nosebleed rate of almost
30 percent, your payment of $250 is split in half:
Interest would eat up $125, and the remaining
$125 would be applied to principal. It would take
you 29 months to pay it off, and the total difference
in cost for interest charges is $1,575 more at
the higher rate. Pass the smelling salts, please!
So I encourage everyone, including you, to learn from this
mistake and avoid late payments like the plague!
How, you ask? Here are some simple tips.
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Simple credit card tips |
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Pay your bills as soon as they arrive. |
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When you are planning a trip, prepay all
bills that will be due before you return.
If the amount is variable and you won't
receive a bill before you leave, call
the company or go online and get a balance. |
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If you pay bills online, use a secure computer while you are away to pay the bills. |
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Thanks for letting me use your letter as a soapbox. Now on to your question about negotiating a lower rate with your creditor. I can understand raising your rate, but the six month penalty seems harsh. I think you have an aggressive lender who looks to make money from the mistakes of others. I would stop using that card and pay it down quickly or if you have the option, transfer the balance to another card or line of credit. If this isn't an option for you then try to negotiate before the six months is up. Ask to speak to a supervisor and let them know you want a lower rate or you will have to take you business elsewhere.
Speaking of elsewhere, watch your
other statements closely. Other card issuers may
raise your rate to new heights under a policy
known as universal
default. Lenders that are more aggressive
will count a default on any bill or deterioration
in your credit score as an excuse to go to a penalty
interest rate. The best card issuers have stopped
doing this, but you may be keeping bad company
if this issuer is an example of what's in your
wallet.
Good luck!
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