Tactics and pitfalls when interest rates are increased

Cell

I had originally posted this in another thread, but one of the regulars suggested that it merits its own bit of cyberspace. Here goes:o

I am heavily indebted to various credit providers, but have an impeccable payment record. For various reasons I pay more than the minimum off some, the minimum off others. However I would emphasis that on my credit report from Experian there is a string of zeros everywhere.

I am not surprised that one by one the card companies have written, increasing the APR. Some have been relatively small increases, but others rather larger. Slowly but surely I am paying my debt down, but it is a multi-year project. Simply on the basis of outstanding balances I am seen as a risk in the event that I am no longer able to pay due to redundancy etc. I understand this and while I might not like it I accept that it is my fault I have this much debt.

However the overall trickle effect of these increases is to ensure that my efforts to pay off debt are eroded month by month. I do sometimes wonder why the CC industry, as a whole, do not get the message that anyone who is so indebted that they feel the risk of default is increased is only likely to be pushed further towards delinquncy by these increases. It's like cutting off the air supply while someone's being strangled!

And so, to the point.

Capital One are increasing my rate from 13.5% to around 20% unless I object (and close the account of course). Having reviewed my overall situation I feel I can do without this card and am happy to lock in my low rate for a balance of £7000 rather than be a hostage to fortune.

1) What are people's experience of CC companies when people do say they'll close. Are they amenable, on the whole, or is this part of a perceived 'toxic debt' shakeout. From their perspective what will be will be?

2) What impact does closing the account have on credit ratings? Clearly it will show up as a reduction in credit available on the Experian report and therefore make you look like you're using a higher proportion of your outstanding credit (which is bad). If my brighter future comes off then would it impact on my ability to get credit at that time? In reality making such a decision actually shows a sensible attitude to finance (ie not wanting or needing debt at any cost).

Sorry for going on so long, but as rates increase for consumers when they have done nothing wrong, maintain payments (and make more money for the CC companies if they don't clear the balance every month) etc I think it's a vital issue.

Sometimes the best short term decision is counter productive in the long term and vice versa.

Responses would be appreciated

Cell

I hope people don't mind me hoofing this one. I would imagine that it would be of interest (pardon the pun!) to quite a few people? Perhaps not give the response

I really do have to make some decisions prior to my wife's redundancy (as mentioned in another thread) and would appreciate any experience or inside knowledge you might be able to offer.

Thank you

babyharry5

Hi
the only one thing I would suggest is to double check the letters you receive, when they advise that the rate of interest is going to be put up.
In a couple of cards that I had (MBNA and Capital one, i think), the letter stated further down that if I did not want the rate putting up then I just needed to phone them up and it would stay the same.
Obviously, I couldnt use the card ever again, but if you are just clearing then this would not be a problem.
Just double check your info on the letter!

babyharry5

oh. by the way.
Luckily I was in a position to clear the debts off . When I informed the companies they really didnt give a hoot and were pleased to take my payment and subsequently close the cards down.
Not as pleased as me though!
I used to work in banking for some time, and I really dont think -IMO-that settling your accounts has a negative impact on your credit rating.

Cell

babyharry5 wrote: »

Hi
the only one thing I would suggest is to double check the letters you receive, when they advise that the rate of interest is going to be put up.
In a couple of cards that I had (MBNA and Capital one, i think), the letter stated further down that if I did not want the rate putting up then I just needed to phone them up and it would stay the same.
Obviously, I couldnt use the card ever again, but if you are just clearing then this would not be a problem.
Just double check your info on the letter!

Thank you

I believe that is now a requirement following government intervention. It's that procedure that I'm concerned about really. I am happy to close the capital One account off at the current rate of interest, and concentrate my payments on the expensive debt. But by doing so am I inadvertently harming my credit profile by unwittingly increasing my 'debt to limit' ratio?

NickX

Cell wrote: »

I believe that is now a requirement following government intervention. It's that procedure that I'm concerned about really. I am happy to close the capital One account off at the current rate of interest, and concentrate my payments on the expensive debt. But by doing so am I inadvertently harming my credit profile by unwittingly increasing my 'debt to limit' ratio?

Yes it is a requirement that you can thank "Mandy" (opps Lord Mandelson) for

I have seen a few people concerned that it will damage their credit profile, but to me this is secondary. We don't know precisely how each lender assesses each individual credit profile so it may or may not make a difference to particular lenders, but the main thing is to pay them as little in interest and charges as you can. Provided you can live without the card, then its a no brainer, close the card down and refuse to pay the [STRIKE]theives[/STRIKE] creditors any more than you have to.

Moggles_2

Cell wrote: »

What impact does closing the account have on credit ratings? Clearly it will show up as a reduction in credit available on the Experian report ...

Has somebody at Cap One/Experian told you this? No experience personally but, AFAIK, no forum user has reported any adverse effects.

The C1 account cannot be marked "settled" on credit files, because there's still a balance, but provided that you make at least the minimum payment required each month, you'll continue to record an unbroken string of zeros. More importantly, you have other credit card accounts with a perfect payment history.

Perhaps, somebody will be along soon with actual experience of this type of arrangement.

I really do have to make some decisions prior to my wife's redundancy

Has she considered applying for a new 0% BT card? If redundancy is imminent, she would need to do this while she is still employed.

To help you further, we would need to know which credit cards - besides C1 - you both have at the mo or have held recently.

Cell

Having reviewed my Experian record and read a fair bit on here I've made my own assumptions (until this thread) about how it may be viewed.

I appreciate the input.

Unfortunately, given our indebtedness, I rather doubt that any new CC application will be successful, let alone one allowing 0% BT:D

Moggles_2

Cell wrote: »

Having reviewed my Experian record and read a fair bit on here, I've made my own assumptions (until this thread) about how it may be viewed. I appreciate the input. Unfortunately, given our indebtedness, I rather doubt that any new CC application will be successful, let alone one allowing 0% BT

This is just conjecture though, isn't it? Best not to second guess too readily how lenders view things. At the end of the day, the only way to find out for certain is to apply. You've nothing to lose really.

That said, if it's not possible to move a alance to a new card in your wife's name, I'd concentrate on paying as much as possible off the card with the highest APR each month. Clearing this debt ASAP will reduce the interest you pay and you'll be building a better credit history in the process. This, in turn, reduces the risk of further interest rate hikes.

For tips, see Martin's *Credit Card Shuffle* article

http://www.moneysavingexpert.com/cards/cut-credit-card-interest

Cell

Yup...point taken on the new application. It's the only shot I might take over the next year or so, and won't harm my credit footprint.

I'm taking the 'snowballing' route rather than the highest APR one at the moment as the more cash I free up from one card the easier I can pay off the next lowest balance. Eventually I hope to be in a position to take lumps out of the big interest cards which have the biggest balance (eg £6000 on RBS Preference at 24%). It's partly psychological. Actually paying something off feels good and keeps you goingI find.

It may cost me more, but I am more likely to keep the faith my way whereas seeing a load of 'middling' balances all a long way away from being settled could be a bit dispiriting.

Additionally, in view of the redundancy situation, I'd rather deal with less creditors if we find ourselves up you-know-what creek without a paddle .

By the way I got home from work today and RBS are putting their rates for me up from 23.9 to 28.95. Rang and asked them if they would reconsider or compromise. Absolutely no chance despite two referrals to a manager, even though I suggested that I might take the option of closing the account. Ho hum.

Was about to ring Capital One and noted that their customer service centre closes at 7pm. These days that's scandalous!

Moggles_2

Cell wrote: »

Yup...point taken on the new application. It's the only shot I might take over the next year or so ... Actually paying something off feels good and keeps you going, I find.

Absolutely. Please keep us posted.

Very best
M