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Everyday Cheapskate: When You Should Opt Out of a Credit-Card Interest Rate Increase

Mary Hunt on

Wouldn't it be great if low interest rates never changed? Sadly, the saying "All good things must come to an end" applies to credit cards too. Credit card companies are known for raising interest rates unexpectedly. They only need to give you a 45-day notice before increasing your rate, which can feel sudden.1

Have you heard from your credit card company lately? Millions of cardholders have. Believe me, we're not talking about love letters. Credit card issuers are raising interest rates across the board. On everyone. More than likely, you were given about six weeks to decide whether you want to accept the increased rate. If you opt out, your account will be closed to future purchases while you have the opportunity to pay off the balance at your current rate. Even once you pay it all off, you can't use the card anymore because it's closed.

My inbox has been flooded with messages from readers who don't know how to respond. If they opt out, how will it affect their credit scores? A closed account can show up as a negative entry in one's credit file. Would it be better to swallow hard on that 28.99% interest rate in favor of an unblemished score?

Here's my answer to these and all other related dilemmas: It depends on whether or not you are carrying a big balance on the account in question.


This is the pivotal issue. If you have a balance on a credit card account that you cannot pay off within the next 30 days, you would be foolish to accept a big interest rate increase. You need to opt out, accept the account closure and breathe a tiny sigh of relief. Finally, someone is stopping you from going deeper into debt.


Do you know what 27.99% or higher looks like in a monthly payment? It's huge. Here is an example: If you have a $2,500 balance at 9.99% interest, about $20 of your monthly payment goes toward interest. Increasing that to 27.99% means $58 of your payment goes toward interest. If you are making the minimum payment only, hardly any of your payment will go toward paying down the balance.

Negotiate a Lower Rate. Try to get a lower rate by talking to your card issuer. If your rate went up because you missed payments, you might not get it lowered, even if it happened with another card. But if you've been good about paying on time and just made one mistake, you might convince them to lower your rate.

Pay Off the Entire Balance Immediately. Try to pay off a big chunk of what you owe before the rate goes up. If you can shrink your balance before the new rate kicks in, you won't feel the higher rate as hard. You might need to spend less in other areas to put more money toward your credit card bill.

Your Credit Score. Opting out will trigger a negative report in your credit file. Your current balance will become 100% of your available credit. This is bad for your score. So is losing an account you've had for a long time.


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