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Dear Debt Adviser,
My “fixed-rate”credit card company offered me a balance transfer with a fixed rate of 5.9 percent for the life of the loan, as long as I am not late on any payments. There are no other details on the balance transfer, but the fine print on the agreement itself states that they can change the terms of the credit card anytime they want with only 15 days’ notice. I can refuse the new terms, in which case they close the account.
Is this fixed-rate balance transfer any more fixed than the “fixed” rate on the credit card itself? It is explicitly stating in black and white that it is fixed for the life of the loan.
If they change the terms of the credit card on me and I refuse, can I pay off the balance (purchases, cash advances balance transfers or special balance transfers like above) under the old terms, or, can they make me pay it all off immediately?
— Mr. Micawber
Dear Mr. Micawber,
You have asked some important questions and are smart to read the credit card agreement before deciding whether to transfer your balances to a new credit card.
Each card agreement is different so I will answer your questions in general terms. A card issuer has the right to change the interest rate of your credit card account with written notice to the cardholder. As a cardholder you have the right to refuse the new rate (also in writing); the card issuer will usually close the account in that case.
Be sure to read the rate-change letter from the card issuer carefully. It will give you a deadline to write to them stating that you do not accept the new terms of the agreement. If you do not meet the deadline, you will be paying the higher interest rates until your balances are paid in full.
After the issuer has closed your account, you can then pay off the remaining balance at the original interest rate as long as you keep up your end of the contract. In other words, as long as you make at least the minimum payment on time.
One of the many ways to get in trouble with credit cards is by not making payments on time, particularly for those cards that offer very low introductory rates. When you sign a credit card agreement you agree to pay the minimum amount due by the due date shown on your statement. If you do not hold up your end of the agreement, the card issuer has the right to charge you a late fee (often $29 or more), raise your interest rate, or both.
Once you have broken the agreement, you have no choice but to pay the increased interest rate or transfer the balance to another card. Even if you decide to close the account, the new increased rate would apply until the balance is paid off.
Additionally, watch out for balance-transfer fees. They can be costly. Also, if you use this card regularly, find out what happens to new items charged. In many cases because you are now carrying a balance, even at a good rate, they will charge you interest at the “old high” rate for any new purchases, starting on the day of purchase without any grace period.
Here are some tips for card balance transfers:
- Read the credit card agreement carefully and make sure you understand all the terms.
- Consider whether you need to close the credit cards with higher interest rates from which you are transferring balances. Closing an account mean you lose that line of credit, and a change in the ratio of available credit to debt outstanding can lower your FICO score.
- When transferring balances in an effort to consolidate debt and lower interest rates, make sure you have a plan for how much money you will pay each month to bring the balance down and don’t add additional purchases to the card.
- Keep close track of the due dates. A good rule of thumb is to make the payment the same day you receive the statement. That way you are assured that your payment will not be late. Issuers can change due dates at any time without notice.
- If the credit issuer changes the terms under which you first transferred your balances, remember you have the right to refuse the change in writing and pay off the balance at the original rate.
The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation. Click here to ask a debt question.