Question: I have a high interest credit card--24.9% with Bank of America, with a large balance $12,000. I am closing the account and Bank of America says the interest rate on paying off the balance is 5.5%. Is this ok under the new credit card law signed into affect? Dennis, San Diego, CA

Answer: My guess is that you got an offer of a lower interest rate in return for closing the account. It's common practice these days.

Although many finance experts recommend against closing an account because it will nick your credit score, I often think it's a good move on your part, especially if money is tight. It can be tough to pay off a large balance at a loan shark rate of almost 25%. A 5.5% rate of interest can make a big difference. Just doing a quick calculation, if you paid the minimum payment at 24.9% you would fork out $5,095 in interest payments alone. At 5.5% the interest charge adds up to $774. Hopefully, you can put even more than the minimum toward getting rid of the loan.

The new credit card law that comes into effect in stages basically protects cardholders from unexpected interest rate hikes and significant changes to the terms of the loan. It also bans some bad practices, such a universal default. (A "universal" default policy hidden in the fine print of a credit card agreement meant that if you were late on any payment to any creditor, the rate on your credit card could automatically jump to the default rate of 30%.) I would imagine in the future that so long as credit card issuers give their card holders sufficient, clear notice they should be able to offer a lower rate in return for closing the account.