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You Have New Rights to Keep Your Old Rate
by Todd Ossenfort
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
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!
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