Getting Personal
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.
Search
Looking for guidance on your personal finances? I'm taking your questions and answering one here each day. Just click on the "Ask a question" link to tell me what's on your mind.
Chris Farrell Marketplace Money personal finance guru
Categories
- Banking
- Books
- Budgeting
- Charitable giving
- Credit cards
- Credit counseling
- Credit report, credit score
- Debt
- Dollar exchange rate
- Economy
- Estate planning
- Financial planner
- Housing
- Insurance
- Investing
- Kids and money
- Mutual funds
- Other
- Paying for college
- Retirement
- Retirement savings
- 401k
- Bonds
- IRAs
- Money markets
- Mutual funds
- Savings
- Scams
- Social Security
- Taxes
- Vacation
- Work
- cars
- graduate school
Hot Topic
Latest Posts
Archives
| S | M | T | W | T | F | S |
|---|---|---|---|---|---|---|
| 1 | ||||||
| 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| 9 | 10 | 11 | 12 | 13 | 14 | 15 |
| 16 | 17 | 18 | 19 | 20 | 21 | 22 |
| 23 | 24 | 25 | 26 | 27 | 28 | 29 |
| 30 | 31 |
sponsor
Latest Comments
- Tax-exempt bonds vs. taxable bonds (1)
- Eric Vanhove wrote: So, if there are calculators on the net, why should we be reading your blog? Geez, give us the form... [read]
- Buying a few shares (2)
- Manuel Mihalas wrote: I would recommend you minimize your trading cost as much as possible. There are many low cost tradin... [read]
- Bob wrote: I just enrolled my 17-year-old in a no-load Roth IRA that requires no minimum contribution. There a... [read]
- CDs (2)
- Mark wrote: According to this, you can withdraw all of your money penalty free after 6 days, and still get the i... [read]
- mei wrote: Can’t state enough how important the sacrifices that go into wealth creation are. Curious if anyone... [read]
- Home equity line of credit (3)
- Bruce wrote: I disagree about using a credit card unless you plan to pay it off quickly. Especially with credit ... [read]
- DJ wrote: Using a cc is not most sensible option. My financial "guru" would never recommend using a cc that yo... [read]
- Variable annuity (1)
- ann hancox wrote: I took Chris's advice and also agree, they are expensive and once fit my life style. I recently cas... [read]
sponsor
Comments (5)
February 17, 2009 6:45 PM PT
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?
February 18, 2009 1:40 PM PT
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.
February 18, 2009 4:20 PM PT
Honestly, who gives a sh*t about the hit to the credit score.. People make to much of that. Especially right now.. Take the hit. Pay it off. Close the account. Companies will appreciate this as we move through this slow down.
February 21, 2009 9:23 AM PT
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.
February 25, 2009 7:05 PM PT
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!