Miss the opt out, you pay the price

If you missed the opportunity to opt out of rate hike, you have three choices

By Todd Ossenfort

The Credit Guy

The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues. Ask a question 'The Credit Guy' archives

Dear Credit Guy,
Hi, I missed the opt-out letter from my bank credit card. I have a $10,000 balance, and my former APR was 9.24 percent but was increased to 29.99 percent. I've been a customer since 2000. I've called several times to ask that my APR be reduced and/or a payment plan, and they said no because my account is current. I pay online and simply missed the opt-out offer. This is my next to last debt to pay off so, of course, that's good. I have been using the debt snowball method, which has really accelerated my payoffs. Any suggestions on what to do from here?

The interest per month is around $240 and it's killing me. Because of the debt snowball method, I can make the minimum payment but just hate to lose so much money each month. I have $2,000 from my tax refund to apply to the card, but just hate losing so much money in the interim. I have a part-time business that also is helping me pay more than the minimum each month. They told me that because my account is in excellent standing that they have no programs to offer me, but if I miss a payment or pay less than the minimum, then call back because they will be able to assist me. Of course this is ludicrous to me since all I need is for them to lower my APR back to 9.24 percent. -- Confused in Georgia

Dear Confused,
Great job on paying down your debt and reaching the point that you have only one account left to pay off. I understand your frustration and looking at it from just your side, it seems unfair. However, if you were the creditors, you would understand their point of view as well. They decided, for whatever reason, that you were an increased credit risk and needed to change your annual percentage rate (APR) to reflect that. Your creditors wrote you a letter explaining this decision and gave you the option to close your account and opt out of the increase in your APR. When they did not receive word from you that you wished to opt out, they increased your APR and left your account open.

On the surface it may seem odd that your credit card issuer will not lower your APR and allow you to pay out your balance at the old rate. The sticking point for your creditors is that they appear to perceive you to be an increased risk and your account remains open -- meaning you can increase your balance with additional charges. Because of these things, the issuer believes it must charge you an increased APR to minimize risk.

True, if you miss a payment or two, the creditor will work with you to lower your interest rate and repay your debt. The difference is that the account will be closed once you are placed on a repayment plan with the creditor, and you will not have the opportunity to add to your balance. Looking at things from the issuer's point of view, the company has no incentive to work with you to lower the interest rate until you cannot make your payments.

You have three options on how to move forward:

1. You can do some research on Creditcards.com to see if you would qualify for a credit card with a lower interest rate that will allow you to transfer your $10,000 balance. And be sure that you check your mail for any and all correspondence from any new creditor!
2. You could miss a payment with your creditor and pay the late fee and any other fees added to the account due to the late payment, and then request a repayment plan from your creditor. I wouldn't recommend missing a payment for a number of reasons, the most important being that you will negatively affect your credit.
3. You could contact a qualified nonprofit credit counseling agency and determine if a debt management plan would work for you to pay off this last account of yours. This could be your best option. You should be able to avoid the late fee and a ding on your credit report for a late payment if you choose credit counseling. Keep in mind; with option two or three your credit card account will be closed.

Take care of your credit!

See related: After creating a debt management plan, stick to it, 8 steps to reducing credit card debt, Consumers gain right to opt out of an APR increase, 8 steps to picking a credit counselor

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: March 29, 2010

	Three most recent The Credit Guy stories: The Credit Guy's top 5 money tips – After writing his column for the past three years, columnist Todd Ossenfort leaves his readers with these top five financial lessons ... Can collectors come after your inheritance? – Public records are perused by debt collectors. If they find out you've inherited a chunk of cash, don't be surprised if they come out of the woodwork ... Neglecting one credit card bill can ruin your credit – A reader has four credit cards, but only wants to pay on three of them. He wonders what will happen if he follows through ...

	CreditCards.com's newsletter Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!