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Ask Savvy: My Credit Card Rate Is Changing, What Are My Options?

Dear Savvy,

I have been working hard to pay off my credit card debt. I received a letter in the mail that Citibank is changing my account terms and raising my APR from 8.24 percent to 12.99 percent. According to the letter, I have two options. I can accept the new terms which will automatically take effect on December 29, 2009, or I can opt out of the new terms, pay down my balance and use the card until it expires which is January 31, 2011.

I don't want to opt out because I won't be able to pay off the balance in time, but I don't want my APR raised either. I'm not actually using the credit card for charges, I'm just trying to pay off the existing balance. What are my options?

Savvy says: While your interest rate hasn't risen enormously, especially compared to the rate hikes many other credit card users have been hit with any increase means that it will take you even longer to pay off your balance. See my advice when you


Because you say that it won't be possible to pay down your balance in a year's time, I'm assuming that your balance is on the high side. You've already made the commitment to paying off your bill, but I want to reinforce that you really need to resist using the card in order to reach your goal. It can be tempting to make smaller charges when looking at them in context of your larger existing balance.

That being said, I think you have two options. Continue your positive track of paying down your credit card with Citi, or transfer the balance to another card that comes with a zero percent balance transfer offer. If you do look into the transfer option, make sure you read all fine print and understand the implications of transferring your account. These cards usually charge no interest for the first year, and then raise rates significantly thereafter. If you haven't paid off your balance in full, the rate could be even higher than your Citi rate and take you even longer to pay off.

If you stay with Citi, you'll have to pay monthly interest on the balance you're carrying, but once it's paid off that credit card will be in really good standing on your credit report. It will show that you've had the same card for a long time which is an important part of your credit rating, and if you pay on time every month it will show that you're accountable. Weigh your options wisely, and everything will turn out just fine.

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