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Increasing Interest Rates

You sign up for a credit card with a 15% interest. You feel pretty good about it because you did all your research, compared rates, and even bargained with the credit card company to give you the best possible rate. You're a financial rock star.

Six months later, you open your credit card statement and find that your interest is now 18%.

Uh, what just happened?

There's a lot of stuff that can cause your interest rate to go up:

  1. You go over your credit limit.
  2. You rack up credit card debt, and the bank gets nervous that you're not about to pay it back.
  3. You stop paying your credit card bills.
  4. You have an adjustable rate card.
  5. You sign up for a credit card with an introductory offer, and the fine print says that the credit card interest rate can go up after a certain period of time.

Basically, your interest rate isn't set in stone. Good news, though: Congress passed a law requiring credit card companies to make it easier for people to deal with credit card debt. With new laws in place, credit card companies must…

  • very clearly explain what you owe and what your limits are and give you other basic information on your credit card bill.
  • explain on your credit card bill how long it will take you to pay off your credit card bill if you pay only the minimum amount.
  • wait a while before increasing your interest rate if you are late with your payments.
  • warn you if they're going to increase your rates because you exceeded your credit limits.

The new law also keeps credit card companies from increasing your credit card limit in the first year, unless…

  • you don't pay your bill for more than 60 days.
  • you sign up for an introductory offer.
  • you have a card with a variable rate.

After the first year, the kid gloves come off, and you can see your credit card interest rate go up.

Playing Whac-A-Mole With Interest Rates

So how can you keep your interest rate from going sky-high?

Do the obvious stuff: pay your credit card bills on time and do your best to pay off your balance. Keep the credit card companies happy, and they're less likely to bite the hand that feeds them.

BTW, while credit card interest rates are most likely to go up, there is another direction they can go. No, your credit card company won't lower your rate out of the goodness of their hearts, but you may be able to negotiate with them to lower your interest rate. If you've been absolutely, devastatingly good about paying off your credit card and paying everything on time, you may have some negotiating power—especially if you threaten to switch cards.

Make no mistake: you're going to have to call your credit card company and argue your case. Your case will be stronger if you can get preapproved credit card offers from other card companies offering you a better rate. If you have good credit and a good repayment history with the credit card, call up your credit company and explain that you've gotten better offers. Ask them to match or better an offer.

Just be aware that the company can say no. If that happens, you have to decide whether you want to stick with the lousy 20% rate or switch to a better card.

Either way, don't let your interest rates rule your life. Start hacking away at them to bring them down to manageable levels—and remember, if you pay back what you borrow quickly enough, you don't have to pay any interest at all.

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