Editorial Policy

My card issuer raised my interest rate, what can I do?

Erica Sandberg

September 22, 2015

QHi Erica,

I have one Discover card and have had no problem to speak of until now. It has been a very good card. It has a $2,000 limit, but Discover raised the interest to 29.9 percent. I can't get out of debt this way. They make it impossible with interest. Who do I talk to? I do not understand why they do this. Thank you very much, Erica. — Aditya

ADear Aditya,

A credit card issuer has the right to increase the annual percentage rate (APR) for several reasons. It may just be because of policy changes at the cardholder. In that scenario, the company would provide a 45-day notice of the hike. This is the opt-out period in which you can reject the adjustment, though if you do, your account will be closed. Still, it would give you the opportunity to complete paying what you owe at the original lower rate.

More typically, an interest rate hike is because of something the cardholder did.

Maybe you paid the bill after the due date one too many times, or you've hit the account's credit limit and the balance is not budging. Revolving debt that is too near the top of your charging ability over many months will negatively affect your credit rating. That can trigger an APR increase because you appear to be in financial trouble.
Ask Erica

It does seem as if you've been having problems with the amount of debt you hold, and the exceptionally high interest rate is certainly making matters worse. I'll illustrate with some scenarios:

If your balance is $2,000 and you make only the minimum payments, very little would go toward the principal. For the first payment of $60, a mere $10 would be applied! Worse, it would take you about 20 years and more than $6,600 in extra finance fees to crawl out of the hole.

So what can you do about it? Yes, you can call Discover and ask to speak with someone who may help you lower your interest rate. It is possible to negotiate for a lower APR, especially if you've been making your payments in a timely fashion. If you haven't and are a month or more behind, you'll need to get back on track for a few cycles first.

Slashing the rate in half would have an astounding effect on the fees and payoff time frame. The same debt with a 15 percent APR would be erased in just over eight years, for about $1,000 in fees. That's not great, but it's much better than the punitive APR you have now.

The real secret to getting out of debt far faster and at the least cost isn't so much the interest rate. You do this by increasing the amount you send to your card issuer each month, then sticking to it. You need to fix the payment so it doesn't decline with the balance. If you were to maintain $60 payments and the rate remained at 29.9 percent, you'd be in the clear in six years. Double the payment and you'd hit the zero mark in just 22 months.

I know I've thrown a lot of numbers at you, but they're important so you can see what it will take to become debt-free. Hopefully this will provide you with the motivation to scare up the cash to throw at this debt. Once you've made six consecutive larger than required payments — made before or by the due date — you'll be in a better position to appeal to Discover. Then you can give the company a call and point out that you're a responsible cardholder who deserves a lower APR.

You can also look into a new balance transfer card, in which another credit issuer assumes the debt and will offer a low interest rate — sometimes zero — for a limited period of time. Some offers last a year or longer. There is typically a transfer fee of a few percentage points of the amount of the debt, which is added to the balance, but you can save massively on interest fees. To qualify for one of these cards, you'll usually have to have a good credit rating. Just be aware that if you falter and pay late, the 0 percent balance transfer deal expires. Do so and you could end up back where you started: with a huge debt and a punishing APR.

Got a question for Erica? Send her an email.

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