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Pay off credit card
Question: Out of the clear blue sky, I got a notice that my Capital One Platinum credit card rate is being raised from 4.99% to 13.99. I have a very high balance on this card (76% of available credit). I checked my own credit records (perfect, never late, all accounts up to date) and score (942) and figured they would want to negotiate with me, but no dice. The guy on the phone said they mailed out 8 million of these notices this week. My options are 1. Find a 0% introductory rate and transfer the balance (if I can even get one) or 2. Opt out of the change in the rate, close the account, and pay it off at 4.99%. Either way paying it all the way down will take me 12-18 months. What is the best alternative or is there another option that you would recommend? Katryn, Minneapolis, MN.
Answer: What the credit card companies are doing is legal. But it's wrong. That said, the best thing you could do is keep the 4.9% rate, close the account and payoff the debt. It's risky to carry a high balance in an economy sinking lower every day and it's prudent to eliminate credit card debt. So, unless there is some business reason why you need this particular piece of plastic, I'd get rid of it--and fast. Capital One loses a good customer, too. That's the power consumers have in our economy. I'm hoping after the shoddy way most credit card companies have treated their customers during the downturn everyone will refuse to carry a balance, slashing card company profits and practicing good personal finance habits.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
Thank you for this conversation! I received the same message from Capital One and did not know what to do. I had also looked at the Discover option but saw the 3% transfer fee. This conversation has helped clarify my plan as I go forward. Thank you for asking the question!
Thanks for the advice and comments. I looked into the 0% balance transfer and was on the verge of opening a new Discover account online when I looked at a little tiny bit of fine print and discovered they would claim a 3% transfer fee up front. So much for "0%." I'll close the account, try to be happy about the 4.99% loan and commit to killing off the balance as fast as possible.
Chris,
If Katryn chooses to close this account (after paying down the balance at the current 4.9% rate), won't the reduction in her overall available credit hurt her FICO score?
That was the concern I had when faced with a similar jump in the interest rate on another bank's credit card.
My choice was to find another card with a low rate to which I could transfer the balance, commit to paying it down at that low rate, but leave the account with the jacked-up rate open yet unused to add to my overall available credit.
Of course, this assumes you will NOT use the card with the high rate again after transferring its balance to the card with the low rate.
Your thoughts?
You're right. It will hurt her credit score, at least for awhile. But my feeling is that too much is being made of the credit score impact. (The exception is if you are in the market for a home in the near future; then you don't want to do anything that would your credit score.) Still, your credit score will improve over time as you continue to pay bills on time. More importantly, your household balance sheet will be much stronger by getting rid of the debt. To me, the real key is eliminating the debt and then staying out of credit card debt. A ding to your credit score is a worthwhile price to pay if closing the account at a lower interest rate is a spur toward that goal. I know that not everyone agrees with me on this, however. The bottom line: I'm comfortable with the trade-off.
