Many of us have already received the dreaded letter from one or more of our credit card accounts. The fixed rate will soon no longer apply, and the rates will be variable. That word strikes the hearts of many out there especially with all the news of adjustable rate mortgages and the issue with sub-prime lending. Most of the national news stories have focused on the ARM as a particular problematic issue, so that means all variable and adjustable rate arrangements are bad, right? Not exactly.
The credit card companies have obviously set this up so that when interest rates go up, they will once again make the big bucks even without the high fees, double-cycle billing, and universal default policies soon to be completely outlawed. Right, wrong, or indifferent, these are businesses, and the goal is to make money. Your goal as a consumer is to spend no more than you have to. So, rule number one: Know your enemy.
Variable rates are tied to the Prime Rate usually stated as Prime plus x%. Your notice should have disclosed what day of the month or quarter will count toward your interest rate. Generally, this includes the Wall Street Journal's published prime rate which can be found here. Your job as the consumer is to always check this rate every time you get a statement. Make sure it matches. If it does not, write them a letter stating their policy, where you got your information (a copy is helpful), and what the rate should be. Writing a letter is the only way to preserve your rights. A phone call or e-mail is not enough. If you must call or e-mail at least send a follow-up letter restating the facts of the issue, who you spoke with, and the outcome of the conversation. A few moments of your time is well worth it.
Look at your required minimum payment. Is this correct? That same account disclosure will tell you exactly how they figure your payment. It is usually x% of your average daily balance plus interest on that same balance. Again, if this is wrong, let them know in writing. The company will not hesitate to let you know if you have done something against that agreement no matter how minute, and as a one person in agreement with another entity, you must be your own advocate.
Rule Number Two: Strategize. Since your goal is to pay out as little as possible, take advantage of the low Prime Rate. If you do not carry substantial debt, this should be relatively easy. Make this highest payments you possibly can (highest interest rate gets first priority), and pay everything off. Considering that the economy is still in bad shape, you likely have a fair amount of time to do this and can at least minimize financial loss.
While it is painstakingly slow to turn things around in personal finance matters, the same rule applies to the national economy and the Prime Rate. Here in Columbus, however, with the new KIA plant in Westpoint, the construction at Fort Benning, and the Columbus relocation of NCR Corporation headquarters along with a new plant, Columbus is certainly in a great position to ride on the first upswings of the economy. As consumers, the same advantages can apply. We are ahead of the economic curve in the nation, which enables you to take advantage of the lower interest rates while hopefully gaining benefit from the Columbus economic stimulus and growth.
Comments
Very well written article. A lot of good suggestions to make sure the playing field stays even.
Personl finances are indeed troubling in these tough economic times....very timely and well thought out article.
I agree with the article...something that we all must keep on top of to preserve our financial well being..also must be mindful not to get ourselves back into the same credit card pinch that we are working to get ourselves out of
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