Misuse of Credit Cards Leads Straight to Trouble
When credit card issuers started increasing credit lines, promising low interest rates “for the life of the balance,” and sending consumers cash advance checks with large numbers already filled in – it was hard to resist.
Some merely transferred balances from higher rate cards. Who wouldn’t trade in their 10.9% balance for 1.9%?
Had everyone kept on paying the monthly minimum payments required at the higher interest rates, their credit card debt would have fallen rapidly. Unfortunately, many used that low interest rate and corresponding lower monthly minimum to reduce their monthly bill payments.
Others saw those offers of 1.9%, and even up to 6.9% as a way to reduce interest payments on a car, or on major home improvements. And again, they used the low monthly payment as a way to spread that debt out over many years.
Now credit card issuers have dropped credit limits sometimes to less than the balance owed – and the fact of being “over limit” has caused the low interest rates to spike.
The result is a monthly minimum that many find difficult, if not impossible to pay.
What to do if you’re in this situation?
First, act quickly. Keep making those minimum payments in order to protect your credit rating while you find ways to finance that debt at a lower interest.
If you owe on a credit card for a car purchase, try to refinance the car at a bank or credit union – and of course, use the money to pay down the credit card. Your interest rate will be lower and the payment will be fixed.
Then, if a good portion of your debt was for home improvements, see if you can get a home equity loan to pay off the card balance. This will put a second lien on your home, but will give you a fixed rate and a fixed payment.
When you’ve gotten that credit card balance as low as you can through those actions, begin working to pay it off. Look for a lower rate card that you can transfer to, or contact your card issuer to see if you can opt out of the rate increase by closing the account.
If you are allowed to opt out and stay at your old rate, remain on the alert for new increases, and put any extra cash you have against the debt.
