April 1,2009
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News: ‘Opt-out? A very common question.
Millions of credit card consumers are faced with this question today. It can be perplexing. When your credit card interest rate jacks sky-high or you're edicted with some other scenario which seems unreasonable, which is the best way to go? Since the conditions dictate the best route, let's consider the most common. You're carrying a large balance on a low-interest credit card and, suddenly, get slammed with a triple magnitude interest rate hike. You aren't in a position to pay the balance substantially down and feel trapped. This is probably the most common dilemma facing our credit card consumers today. In the most typical credit card cases the options are:
1) Pay the new interest rate, ‘bite the bullet' and hope for the best;
2) Simply opt-out of the change, allow the credit card account to be closed, agreeing to pay off the card at the old rate.
3) Borrow the money ‘from Peter to pay Paul';
4) Seek more creative alternatives.Case #1: The best route here, again, depends on circumstances. For this scenario, the deciding balance concerns your ability to pay the interest without suffering worse financial woes elsewhere. If paying the higher credit card interest seems the lesser of the ‘evils' then, the goal would be to pay the balance down as quickly as is practical. Financial health is key here.
Case #2: Obviously, you would choose this if you have no choice. But, consider the ramifications:
o Your credit card score will probably fall for a few reasons:
a) Your ‘utilization ration will increase;
b) You will lose ‘Credit card history' depth;
c) You may incur a black mark in your credit report from the credit card lender;
o On the good side however, since you can't charge anymore, you will be slowly be digging yourself out of debt and be the wiser for it.Case #3: ‘Robbing Peter to pay Paul' (‘robbing' and borrowing can be tantamount to the same thing) is a double-edged sword. If timed right it can do the trick. But, if ill-timed, you can find yourself with armies closing in from both sides. Credit card lenders will take all they can get.
Case #4: This is, of course, the best answer when it applies.
a) Call the lender and negotiate.
b) Secure another credit card with low interest and shift all spending to this new card. Take the cash saved from using the charge card and immediately apply it to the high interest card.
c) Secure another card and opt-out of the first, etc. Be creative.