YOUR MONEY: Credit card changes can cost plentyWhile interest rates on savings hit ugly lows, interest rates on credit cards are flying to even higher double digits for many households. The bad economy - and high consumer defaults - mean that credit card issuers are likely to continue to tighten standards, as well as increase rates and fees, said Bill Hardekopf, chief executive of LowCards.com.
By: Susan Tompor, Detroit Free Press
Judy Eastman said she has never been late with a payment and usually, but not always, pays off the full credit card balance each month. No matter, her card issuer still doubled her interest rate on one credit card.
"For no reason at all, they raised my rates," the West Bloomfield, Mich., retiree said. "It's totally unreasonable."
Eastman's two Capital One cards shot to 17.9 percent. One had an annual percentage rate of 8.9 percent, and her Capital One No Hassle Rewards card had been 13.3 percent.
This is not the only rate hike.
While interest rates on savings hit ugly lows, interest rates on credit cards are flying to even higher double digits for many households. The bad economy - and high consumer defaults - mean that credit card issuers are likely to continue to tighten standards, as well as increase rates and fees, said Bill Hardekopf, chief executive of LowCards.com.
But he predicted that ultimately, cardholders could start paying more on their credit card balances. If the finances of the credit card issuers improve, he said, card issuers could then relax interest rates and fees to compete more with one another for market share.
Until that happens, though, watch for warnings of higher rates in the mail. Even with bank bailouts, consumers are being charged more to borrow money.
Some Bank of America customers said they received letters that their rates were going up in June from about 12 percent to 24 percent.
Betty Riess, a spokeswoman for Bank of America, said rates are going up for a group of customers who had credit card rates below 10 percent because those rates are underpriced based on current market conditions.
"Our costs of providing credit have significantly increased," Riess said.
Other customers are seeing their rates go up because risk factors have increased for those accounts, she said.
Credit card companies are telling customers they can freeze their old lower rate, but then they cannot use the card again, or risk everything on the card being charged the higher rate.
Generally, credit ratings can drop significantly, especially if a consumer cancels a credit card that has been held for years.
As a result, Greg McBride, a senior financial analyst at Bankrate.com, said that if you're in the market for a mortgage in six months or so, you do not want to cancel a card.
Others could be better off sticking with the lower rate, even if it means canceling the card.
At a 12 percent rate, for example, the payment would be about $111 a month if you wanted to pay off $5,000 in five years.
At 24 percent, the monthly payment would go up to $144 to pay off the bill in five years.
Total interest: In the neighborhood of $3,500 at 24 percent vs. about $1,500 at 12 percent.
WHAT YOU CAN DO
-- Put part of your tax refund toward credit card debt and save another part in an emergency fund. Greg McBride, a senior financial analyst at Bankrate.com, said paying down debt will help consumers get a better credit score and more attractive rates.
-- Pay bills on time.
-- Shop for cards. See www.bankrate.com or www.credit.com. The best rates go to consumers with good credit scores and low balances. "Make sure you know how strong your credit is before you start shopping so you don't risk rejection," said Gerri Detweiler at Credit.com.
-- Talk to your credit union about lower rate options.
-- Do not cancel in a huff - it could hurt your credit score.
(Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at email@example.com.)