How to Deal with Interest Rate Penalties and Credit Card Repricing

Recent reports indicate that more than 50% of cardholders are now paying penalty interest rates on their card balance. When the interest rate applied to a credit card balance or certain transaction types is suddenly raised this is called repricing. Sadly, the majority of cardholders that are dealing with credit card repricing are not even sure why the penalty interest rate was applied in the first place. Although many times a credit card company will simply charge a one-time fee to penalize a customer for late payments or not paying the minimum amount, in some cases they may apply a permanently raised interest rate. The following paragraphs outline the common causes of interest rate penalties and credit card repricing, as well as how to prepare for and deal with repricing.

 

What Causes Credit Card Repricing

 

Credit card repricing is not always understood by cardholders that are subjected to interest rate penalties, but sometimes the cause of the penalty can be disputed with success. In most cases, credit card companies will hike the interest rate due to a late, insufficient, or missed repayment. However, it is also possible for repricing to be caused by regional economic factors, such as bank interest rates. All credit card companies and lenders have the right to raise interest rates at any time as long as they provide at least 14 days notice to the cardholder or borrower. Thus, it is important to check your mail on a regular basis and be on the lookout for notifications from your card company, so that you may dispute repricing as soon as it becomes evident.

 

Preparing for Repricing

Fortunately, it is possible to adequately prepare for credit card repricing and minimize the possibility of incurring unnecessary debt by understanding the terms and conditions of promotional periods, interest rates, and repayment requirements. It is important to know the expiration date of the promotional period, as this will help you prevent the possibility of being caught off guard and conducting a lot of transactions while you’re under the false assumption that your balance is incurring the 0% introductory interest rate. It is also important to note that some transaction types automatically carry different interest rates than general purchases. For example, a cash advance can carry interest rates as high as 20% APR or more, even if the same card has a 0% APR introductory rate for balance transfers and other transaction types. It is becoming increasingly difficult to avoid penalty interest rates due to the universal default clause, which allows credit card companies to apply penalties to cardholders for defaulting or making late payments on any of their credit cards.

 

How to Dispute Penalty Interest Rates

It is imperative to dispute any unexpected repricing or interest rate penalties as soon as they’re noticed, especially if you’re not sure why the interest rate has been changed. The first step to disputing penalty interest rates is determining the cause by submitting an inquiry to your credit card company either via e-mail or phone. Anyone that frequently utilizes one or more lines of credit should closely examine their monthly statements and always strive to understand any changes in their account status or interest rates. If you find that your card’s interest rates have been risen unjustifiably it is best to write a formal letter or e-mail to request that the rates be returned to the standard or introductory APR if possible. Before zealously disputing a penalty interest rates caused by a late payment, it is important to realize that credit card companies penalize cardholders based on when a payment is processed.

 

Consolidating Credit Card Debt to Simplify Repayments

Repaying multiple credit card debts or loans can be a hassle for anyone that is not a professional accountant, but many tend to underestimate the challenges associated with balancing ongoing monthly bills and several debts that are accumulating interest at increasingly high rate. Because most cardholders are subjected to penalty interest rates after a late or missed payment, it is not uncommon for one to have two or more credit cards with outstanding debts that carry an APR of 20% or more. The key to escaping debt quickly, with a minimal amount of interest paid, is to consolidate the debts to centralize and simplify monthly repayments.

 

Using Balance Transfer Credit Cards

The best way to consolidate the balances of several credit cards to a single account is to utilize the benefits of a balance transfer credit card. Balance transfer cards are called so because they do not carry balance transfer fees, which can range from 2 to 5% of the total transaction amount each time a balance transfer is conducted. In addition, balance transfer credit cards often have 0% APR introductory periods, allowing the cardholder to begin making repayments towards their newly transferred balances without any interest charged. If you can manage to repay all of the transferred debts before the introductory rate expires, you may be able to avoid all future interest. Keep in mind that it may be difficult to receive approval for an ideal balance transfer credit card after your credit score has already been damaged, so it would be ideal if you already had an open balance transfer account to use.

Using Standard Credit Accounts

 

If you’re unable to obtain approval for a balance transfer credit card, it may still be beneficial to use standard credit account, depending on the cost of the balance transfer fees and how much interest could be saved,. For example – If you currently owe $600 on a credit card that is being charged 20% interest, and you have another credit card account that is currently incurring the introductory rate, yet has balance transfer fees of 2% of the transaction amount, it would still be advantageous to transfer the balance and consolidate the debt. On the other hand, if the card that is being charged 20% APR only has an outstanding balance of $300, and the balance transfer fee is 5% of the transaction amount per transaction, then it would not be beneficial to conduct the transfer. As a rule of thumb, as long as the account that is being used to centralize the debts carries a lower interest rate than all of the other accounts and does not have exuberant balance transfer fees, then it may be advisable to consolidate debts using that account.

 

Using Loans with Lower Interest Rates

In rare cases, it may be possible to obtain approval for a loan that carries lower interest rates than one or more of your current outstanding credit accounts. Unfortunately, once the credit score has been damaged it is often difficult, if not impossible, to find a lender that will approve you for a loan that has better terms and conditions than the credit cards that you are currently trying to repay. If you’re interested in using loans to consolidate credit card debts, it would be best to avoid those that have strict penalties such as payday loans, as these could be detrimental to your debt reduction efforts by causing more debt to accumulate. It may also be possible to find a close friend or family member that is willing to obtain or cosign for a better loan to help you consolidate your debts.