Why Snowballing Debt doesn't work.....

immoral_angeluk

ZTD wrote: »

Question: "Why are we raising my interest rate?"

A1. "Because you are only paying minimum payments, hence a greater risk."
A2. "Because you are paying so much off, we need to get our profit from you quicker than we thought."
A3. "Because Mars is ascendant into the cusp of Venus."
A4. "Because we've looked at your credit report and decided that you may not be able to BT."
A5. "Because we can. What are you going to do about it?"

There is no mention of snowballing in any of that. There is an implication in the answer to the following question.

Q. "When are you going to lower my interest rate to make my debt easier to pay off, and so lessen your profit?"

A. "When Satan skis to work."

lol brilliant... :rotfl:

tpurch

unixgirluk wrote: »

Ok, so same as me your interest rates have gone up but why not recalculate through the snowball calculator?

Yes, I did recalculate - but thats not the point.

The point I was trying to make was that all the APRs increased, and the one that I was trying to payoff doubled :eek: Without a doubt Virgin(MBNA) caused me more problems by moving payment dates and increasing the APR, but the other cards (to a lesser extent) started increasing their APRs too, and when I contacted them I was told that the APR was increased because I was only paying the minimum amount and refused to lower them.

Now I have stopped snowballing because I felt it wasn't working as well as I expected (from my initial snowballing figures) and I changed to moving the larger payment between credit providers. So one month pay Barclaycard minimum+additional spare cash, next month pay egg minimum+additional spare cash etc.

In the last week I have been accepted for a credit card (previousally unobtainable). One company has reduced my APR without being asked and I have had a increased limit on another(not that I intend to use it!)

Sorry if people think I am being negative about snowballing debts,

I am not its a great idea, but in pactice it didn't work for me because the Credit Card Companies upped the APRs. I do find it interesting that people think that making minimum payments make no difference yet, since I changed the method from snowballing the APR on one card has been reduced without requesting it........

Locana

Doesnt the new interest rate take effect o new purchases after the date of change?? If the original interest rate was 15% the surely they have to charge you at that rate for purchases you have already made, and then any new transactions would be charged at the higher percentage rate? Thats what was in the letter when Capital One raised my interest. I wasnt using the card anyway, so it wouldnt affect me unless I use it again (which I wont!)...

Kevicho

Surely this cant be legal, when you take out debt, you do it at an agreed rate, which is what they advertise at the time, fair enough any additional debt you incur from when they raise it.

Someone should look into this scam

ZTD

Nope, not illegal. It's in your T&Cs that they will give you notice, then make your interest rate anything they choose.

GettingThingsDone

It feels like there's some kind of extortion racket going on, with credit card companies ramping up interest rates at will. What is the justification?

The interesting thing about snowballing is that you see the actual costs (in money or over time) of the APR rise, which is why it is making me soooo angry :mad:

Is anybody starting a campaign against this kind of behaviour - I know it's in the terms and conditions, but like the bank charges scandal maybe it's unlawful?

Seaxwyn

I'm sure that Locana is right. The new rate will only affect transactions made after that date. It won't affect the existing debt you are paying off.

One of my cards is with Abbey and they seem to right to me monthly with a new rate - however I just ignore them as I have no intention of spending on that card anyway.

tomterm8

There is a chink in their armour, that AFAIK has never been used before.

I would send them the following letter registered post.

"
YOUR ADDRESS

DATE

CREDIT CARD Company Address


Dear Mr X,

RE: AC NUMBER

I note that you raised my interest rate from X to Y, as of the XND.

In your letter you gave no explanation of the reason for this increase. I ask that you send me your reasons for this increase.

Can you also confirm that this interest rate increase only applies to new transactions.

I ask that you respond within 28 working days of this letter.

Yours Sincerly,

XXX."

If you have a copy of the credit agreement, can you type out the relevant section (i.e. the bit that gives them the right to increase interest rates?),

Also, PM me when you get the response to this letter.

(Note to self: Unfair contract terms guidance consultation april 2007)

tpurch

The T&Cs on credit cards allow them to change the APR provided they give you written notice. The interest rates are applied on both your current and future purchases. Yes in some cases the credit company may only apply to new transactions but for the most part companies apply the charges retrospectively.

However, it is possible for someone to be misled into thinking it only applies to new purchase because the wording of the letter (I don't think I kept any of the letters but I will check).

When a new statement is issued it will state x percent on cash withdrawals and x percent on new purchases it may also state if you have a BT promo rate, but I have never seen a statement that says x percent on existing purchases/cash withdrawals!!!

As a legal issue I believe they are protected but morally it’s very wrong because you know the APR when you make a purchase. I would have never spent so much ( sorry! anything ) on my cards had I known that they would double the APR.

The JOKE is much of the goods I purchased, I could have taken out on Finance in store at the same APR, but I told them I wasn't interested cos the APR was outrageously high.

tomterm8

At the moment, your reading seems correct. However, the OFT has release a new consultation document "Unfair contract terms guidance Consultation on revised guidance for the Unfair Terms in Consumer Contracts Regulations 1999"

Unfair_Terms_in_Consumer_Contracts_Regulations_ wrote:

Group 12: Price variation clauses – paragraph 1(l)
of Schedule 2
Schedule 2, paragraph 1, states that terms may be unfair if they
have the object or effect of:
(l) providing for the price of goods to be determined at the time of
delivery or allowing a seller of goods or supplier of services to
increase their price without in both cases giving the consumer the
corresponding right to cancel the contract if the final price is too
high in relation to the price agreed when the contract was
concluded.
12.1 The OFT's objections to variation clauses generally are set out under
Group 10. If a contract is to be considered balanced, each party
should be sure of getting what they were promised in exchange for
providing the 'consideration' they agreed to provide. A clause
allowing the supplier to increase the price – varying the most
important of all the consumer's contractual obligations – has clear
potential for unfairness.
12.2 Any purely discretionary right to set or vary a price after the
consumer has become bound to pay is obviously objectionable. That
applies particularly to terms allowing the supplier to charge a price on
delivery of goods that is not what was quoted to the consumer when
the order was placed. It also applies to rights to increase payments
under continuing contracts where consumers are 'captive' – that is,
they have no penalty-free right to cancel.12.3 A price variation clause is not necessarily fair just because is not
discretionary – for instance, a right to increase prices to cover
increased costs experienced by the supplier. Suppliers are much
better able to anticipate and control changes in their own costs than
consumers can possibly be. In any case, such a clause is particularly
open to abuse, because consumers can have no reasonable certainty
that the increases imposed on them actually match net cost
increases.29
29 A right to pass on VAT increases does not attract these objections, since such changes
are (a) outside the supplier's control (b) publicly known and verifiable and (c) universally
applicable, so that the consumer would not be any better off with a right to cancel.
Office of Fair Trading 50
12.4 A degree of flexibility in pricing may be achieved fairly in the
following ways.30
Where the level and timing of any price increases are specified
(within narrow limits if not precisely) they effectively form part of the
agreed price. As such they are acceptable, provided the details are
clearly and adequately drawn to the consumer's attention.
• Terms which permit increases linked to a relevant published price
index such as the RPI are likely to be acceptable, as paragraph 2
of Schedule 2 to the Regulations indicates, subject to the same
proviso.
• Any kind of variation clause may in principle be fair if consumers
are free to escape its effects by ending the contract. To be
genuinely free to cancel, they must not be left worse off for
having entered the contract, whether by experiencing financial
loss (for instance, forfeiture of a prepayment) or serious
inconvenience, or any other adverse consequences.31
12.5 Terms of this kind, and acceptable amendments, are illustrated at
Annexe A under Group 12.
30 Note the absence of a 'valid reasons' route to fairness. The OFT does not consider that
use of 'valid reasons' normally justifies price increases, essentially on grounds stated in
paragraph 12.3,that is, lack of verifiability.
31 In home improvement contracts (guidance OFT737), discovery of 'structural problems'
should not be a basis on which the consumer can be compelled to pay higher prices unless
the term is qualified in the same way as a right to cancel on adverse survey – see paragraph