Expect to Pay More If You Are Late With A Credit Card Payment
Many of the nation's largest credit card companies recently sent notices to their customers informing them that if they do not pay the credit card bills on time the penalty could raise the Annual Percentage Rate (APR) of interest on these accounts to as high as 29.99% on new charges.
The announcement has confused a lot of people who thought the provisions of the Credit CARD Act of 2009 prevented this.
The CARD Act protected only existing credit card balances from the practice of raising interest rates based on payment history and credit worthiness. Issuers can raise rates at any time for any reason on new balances with 45 days' advance notice. Under the act, there is no cap on how high interest rates can go.
Therefore, it is more important than ever to promptly open bills and other mail from credit card companies to learn of any term changes. Also, since a payment just one day past the due date can trigger the penalty APR, consider setting email reminders and calendar alerts to help you remember to always pay on time.
If you have a higher APR assigned to your account, there are steps you can take:
- Use the 45-days advance notice card companies are required to give you to shop for better terms or opt out of continuing to use that credit card.
- Since the penalty APR affects only new balances, you can decide not to make any new purchases with the card and continue to pay off the existing balance, which is not affected by the penalty APR
- If you continue to use the card for new purchases, try to pay more than the minimum amount due because the extra amount you pay will be applied to balances with higher interest rates first.
- You can opt out of the terms, in effect, closing your account and ending your ability to make new purchases. The CARD Act gives you the right to take at least five years to pay the balance.
- If your debt becomes overwhelming, consult a non-profit credit counselor, such as those who work at American Debt Counseling, Inc., who will go over your individual finances at no charge in a confidential manner and discuss steps you can take to improve your financial situation.
