What You Can Do About Rising APRs?

Before, the passage of the Credit Card Bill of Rights, many people made all sorts of predictions, both reasoned and fanciful.    Among the more reasoned predictions was that interest rates would go up, and that credit card fees would increase as well.   I have argued that credit card fees have not gone up, despite some questionable news reports to the contrary.    On the other hand, it seems incontrovertible that APRs are going up.  For some evidence of this trend, look here, here, and here.

The question is, what can you do about it?

Pay Off Your Balance

This seems completely obvious, so I won’t belabor the point.    My writing in this blog has been full of convincing arguments why carrying a balance on your credit card is a bad idea.    Well, now it is worse.   Undoubtedly, there are some situations in which people have reached rational conclusions in which credit card debt was their only option.    With APRs shooting up, it is time to rethink that option.

I would seriously consider looking to other ways of borrowing in order to retire your credit card debt.   I won’t recite a list of ways to save money, that is well covered on the internet.    What I would suggest is that you look at major financial maneuvers to retire your debt at once.   If you own a home, getting a home equity loan is a good start.    If you qualify, home equity rates will be much lower than where credit card rates are going.    Another option would be the cash out refinance.    It is like a home equity loan, but it is essentially a one-time deal.    In either case, the interest that you pay on a loan for your primary residence will be tax deductible.     Credit card interest is not.     The downside is that, of course, you will have less equity in your home.     To make up for that, you can easily add to your mortgage payment what  you had been paying to your credit card company.    The money that is added to each payment will go towards your principle, and you will come out ahead in the end due to both the lower interest rate and the tax detectability of the interest.

Restructure Your Assets

That is a fancy way of say, “sell something that is not worth the cost of your credit card interest.”    It might be a boat, a car, or some other valuable object.    Either way, decide if your ownership of it is worth the amount of money that you are paying every month on your credit card interest alone, after your rates have gone up.    Another way to knock this off in one big blow is to eliminate an anticipated expense.    Cancel a vacation or postpone another major purchase.    What made sense when your interest rate was 7% might not make sense at 27%.

Ask For A Lower Rate

When it comes to credit cards, it never hurts to ask.    If you have a good payment history, your bank may be able to lower your rate just by asking.    The worst they can say is no, so why not give it a try?

Shop Around For A New Card

Even with spiking interest rates, the credit card market in the United States remains vibrant.    If it were not, you wouldn’t see so many companies trying so hard to get you to apply for their credit cards.     Now may be the time cancel your card and look for better offers.    On the other hand, there will be other companies raising their rates in advance of the February implementation of the provisions of the Credit Card Bill of Rights.

Don’t Feel Powerless

It is depressing to get a letter in the mail that says that due to no fault of your own, your rate is going up.   Just remember, your are the CEO of your personal finances.    You can make decisions to maximize your income and minimize your expenditures.    You have the power to fire your credit card company once you have paid off your balance.     In fact, when that day comes, you can even tell them that “you regret to inform them of your decision, but it is due to circumstances that are beyond their control…”