You probably see credit card offers all over the place. They’re in the mail box, in your email, on TV, and on the web. Every one of them boasts about the great interest rate they’re offering, and the temptation to click and apply or fill out a form is great, especially when you need some financial relief.
Suppose you accept one of the offers. Will the sponsoring credit card company increase their rate after a couple of months? And what excuse will they use?
In the past, credit card companies could make changes with the wind, but new laws have stopped practices such as raising the rate on your card simply because a competitor raised your rate on their card. Credit card companies can still raise your rate, but they have to let you know when and why.
General Change of Rate: If you’re in good standing, your interest rate can change only if the credit card company changes the rate for everyone having the same kind of account with them, and they have to give you 45 days notice. The notice gives you time to pay the outstanding amount and cancel the card before the rate goes up.
Late Payment: Sometimes the credit card company will raise your rate to their default rate if your payments are late for two months. To do that, they have to give you the 45 day notice, and, if you make the required payments for six months – on time – at the new rate, then the company has to reduce the rate to the rate you had before the increase.
Cash Advances: A credit card company can offer a teaser rate coupled with a flat fee. After a period of time, the interest rate on cash advances can increase to a rate that’s higher than your credit card rate. What many companies don’t advertise is that your payments are applied to the minimum payment requirement on your credit account first. Only after that payment is made is anything applied to the cash advance, which is why we don’t recommend taking cash advances from credit cards.
Balance Transfers: Credit card companies will offer a lower interest rate on balance transfers to entice you to transfer your credit debts to their card so you have a bigger balance with them. They know that most folks won’t pay off large transfers during the teaser period and will end up paying the normal interest rate on the larger amount they now owe. Of course, you come out ahead if you do pay the transfer off during the teaser period, particularly if they offered you a zero percent interest rate.
Resist the temptation to fall for the pleas from credit card companies. Instead, take stock of the credit cards you currently have, work with them to lower your interest rate as much as possible, and focus on managing and reducing the debt you have instead of adding more.