The Credit Guy

You have new rights to keep your old rate

The Credit Guy columnist Todd Ossenfort

Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
My wife and I have a Suzuki motorcycle financed on a promotional credit card. The current rate of 8.95 percent is scheduled to increase to 24.99 percent on Oct. 5, 2009. Under the new credit card law is it possible to opt out and freeze the current interest rate? I have called my creditor and asked if they can extend this rate for 12 months to give me the opportunity to pay off the balance of $11,400. They said they cannot do that, and the rate will increase even if I close the account. The balance is more than the motorcycle is worth, so I an unable to refinance. My wife’s credit took a hit due to late car payments. I told my creditor that we will no longer be able to afford the payments when they increase. They said there is nothing they can do. What would you suggest? What options do I have?  — Mitch

Answer for the expert

Dear Mitch,
You have several options available to you. Since I don’t have a complete financial picture, you will need to determine which would be the best fit for your situation.

First, you could transfer the balance from your current credit card issuer to a different card issuer. You mentioned your wife has some late payments on her credit history, and if you have similar information on your credit history, this may not be a viable option given that you need to transfer $11,400. Should you decide to transfer the balance to another credit card, be sure you read the cardholder agreement carefully and understand all the terms — especially the v, which have been on the rise of late. Also, shop for the best interest rate credit card with the best terms for you. The most important thing to remember with a credit card is to make all your payments on time and as agreed. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 ban on universal default (raising interest rates even if you pay on time) practices does not go into effect until February 2010.

Second, do you need the motorcycle for transportation? If not, consider selling it for as close to what you owe as you can get and then pay off the remainder of your credit card balance at the nonpromotional rate, or see if you can transfer this much smaller balance to a card with a better interest rate. Moving forward, you would typically be better served to have a sizable down payment and a more conventional installment loan for a large purchase such as a motorcycle.

Third, and perhaps the least desirable option, if you are a homeowner and depending on your home’s value, you might consider a home equity loan or home equity line of credit. Again, the credit market is still pretty tight, so if you have a less than stellar credit score, you may not qualify for a home equity loan product with a favorable interest rate. However, if you do qualify for a descent interest rate, be sure you are not over borrowing from your home’s equity and that the housing prices in your area are stable. Just as you would with your credit card balance, have an aggressive plan to pay down the balance as quickly as possible. Remember, you are trading an unsecured credit card debt for a secured debt in which a default could jeopardize your home.

Finally, the CARD Act of 2009 provides a cardholder the right to close your account and pay off the balance owed at the current interest rate as opposed to accepting the interest rate hike. You have a minimum of five years to pay it off. This right went into effect on Thursday, Aug. 20. This, however, does not apply to your rate of 8.95 percent because the rate was promotional and the stated rate after the promotional time period is 24.99 percent.

For any accounts that do not have a promotional interest rate, but instead have a reasonable rate that your card issuer wants to raise, you can take advantage of the CARD rights. To take this course of action, send a letter to your creditor informing the company that you are exercising your rights under CARD to close the account and pay off your balance at the current interest rate. Send the letter certified mail with a return receipt request. You might also call the creditor and let them know that you have sent the letter.

Take care of your credit!

See related:5 new rules in the balance transfer game, A comprehensive guide to the Credit CARD Act of 2009, Credit card reform’s 1st phase in effect Aug. 20, Have you been ‘rate-jacked’? Here’s a sample opt-out letter

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