Article : Missed rate increase opt-out? You have 3 choices

Todd Ossenfort | Posted: Friday, April 2, 2010

Q: I missed the opt-out letter from my bank credit card. I have a $10,000 balance, and my former APR was 9.24 percent, but it was increased to 29.99 percent. I’ve been a customer since 2000. I’ve called several times to ask that my APR be reduced and/or a payment plan, and they said no because my account is current. I pay online and simply missed the opt-out offer.

This is my next to last debt to pay off so, of course, that’s good. I have been using the debt snowball method, which has really accelerated my payoffs. Any suggestions on what to do from here?

The interest per month is around $240, and it’s killing me. Because of the debt snowball method, I can make the minimum payment but just hate to lose so much money each month. I have $2,000 from my tax refund to apply to the card, but just hate losing so much money in the interim.

I have a part-time business that also is helping me pay more than the minimum each month. They told me that, because my account is in excellent standing that they have no programs to offer me, but if I miss a payment or pay less than the minimum, then call back because they will be able to assist me. Of course this is ludicrous to me since all I need is for them to lower my APR back to 9.24 percent.

A: Great job on paying down your debt and reaching the point that you have only one account left to pay off. I understand your frustration and looking at it from just your side, it seems unfair. However, if you were the creditors, you would understand their point of view as well. They decided, for whatever reason, that you were an increased credit risk and needed to change your annual percentage rate (APR) to reflect that.

Your creditors wrote you a letter explaining this decision and gave you the option to close your account and opt out of the increase in your APR. When they did not receive word from you that you wished to opt out, they increased your APR and left your account open.

On the surface, it may seem odd that your credit card issuer will not lower your APR and allow you to pay out your balance at the old rate. The sticking point for your creditors is that they appear to perceive you to be an increased risk and your account remains open — meaning you can increase your balance with additional charges. Because of these things, the issuer believes it must charge you an increased APR to minimize risk.

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Article : Common features of Debt Management Programs

After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common benefit of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is more common.

The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether. This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.

A third benefit offered by credit counseling agencies is the process of bringing delinquent accounts current. This is often called "reaging" or "curing" an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. For example, a client with an account with a monthly payment of $50 which has not been paid in two months might be considered by the creditor to be 60 days past due. After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status. Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus. It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports. It merely gives a fresh start and an opportunity for the client to begin building a positive credit history. Like all derogatory credit information, the passage of time will lessen the impact of the negative marks when credit scores are calculated.

source : http://en.wikipedia.org/wiki/Credit_counseling