By Eva Norlyk Smith. Ph.D.
The new credit card rules, which stepped into effect on Monday, introduce important new protections for consumers by limiting card issuer’s ability to hike interest rates on existing balances.
Unfortunately, for people already stuck with high-interest credit card debt, it offers no relief. Millions of consumers got caught in a tough spot over the past year, as credit card issuers hiked interest rates on existing credit card debt, at times by a dizzying 29.99 percent. Further, those seeking credit card debt relief are inundated with—mostly misleading—media plugs for debt relief making it difficult for consumers to find the right resources to help them.
A new initiative seeks to change this and put a new face on credit card debt relief. Founded by a group of credit union advocates and a former NASA developer, the American Debt Relief Challenge is helping cardholders nationwide get the information they need to transfer high-interest credit card debt from for-profit big banks to lower interest credit cards or loans with credit unions.
Credit unions are not-for-profit financial organizations owned by their members, which offer all the services of regular banking, but typically at lower rates. Credit unions can charge lower interest rates on credit cards, mortgages, and other types of consumer loans, because their main concern is not to maximize profit for shareholders, but rather to serve the interests of their members. Individuals who transfer their credit card debt to credit unions will find that more of their monthly payment is applied to pay down the debt and less to cover high interest charges.
Not everyone is aware of credit unions and the lower interest rates they often can offer on credit cards and other loans. Further, those seeking debt relief are inundated with-mostly misleading-media plugs for debt relief making it difficult for consumers to find the right resources to help them. The American Debt Relief Challenge seeks to change this by providing information and useful resources about the possibilities for debt relief, including a website featuring a list of credit unions willing to help people with credit card balance transfers from high- interest rates back to traditional ones.
The efforts seem to be paying off. According to the calculations of the American Debt Relief Challenge, so far the collective savings that consumers have accrued from the transfer of debt to participating credit unions exceeds $20 million; money that would otherwise have been spent on interest charges on credit card debt with large banks.
In a dramatic example of the savings some consumers have been able to harvest, one credit union took over a credit card debt of $10,400, on which the cardholder was paying a dizzying 40.99 percent interest with a major credit card company. The new rate? A palatable 12.2 percent. By making the switch, the cardholder saved $33,000 over the course of the debt’s lifetime.
By helping other cardholders find credit unions who can offer them a better deal on their debt, the American Debt Relief Challenge aims to reach their goal of saving U.S. families $300 million. Of course, like always, the terms of the loans depend on the credit score, but most people with a good credit rating will find that credit unions indeed offer a welcome new resource for credit card debt relief.
