Be Proactive about Credit Card Rate Hikes

Credit card interest rates are on the upswing.  You may not be safe from the increases, even if you always pay your bills on time.

Like playground drug dealers, credit card companies got us hooked on cheap and easy money.  Now they're gearing up to take it all away. If you can't survive without your credit card, now's the time to take action.

A perfect storm of consumer debt

Things don't look good for credit card issuers right now, mainly because things don't look good for credit card borrowers. The U.S. economy is in recession, consumers are losing their jobs, and the once-plentiful supply of home equity has disappeared. The recession and rising unemployment are impacting credit card issuers in obvious ways, as more consumers fall behind on their credit card payments. The home equity effect, while less obvious, is taking a toll, too: many debtors no longer have the option to tap their home equity to pay off those burdensome credit card balances.

In this tough environment, card issuers are acting aggressively to offset a growing pile of default-related consumer debt losses. They're spiking interest rates, cutting credit limits, and implementing higher fees and service charges. The changes could turn your credit card into a luxury that's too expensive to maintain.

Credit card action plan

It's likely that you'll have to absorb some type of cost increases related to your credit cards. But you may be able to minimize the impact somewhat, particularly if you have good credit management habits. Here's what you need to do:

• Get organized. Make sure that there's no chance of you missing a payment or exceeding your credit limit. Either scenario will get you slapped with stiff penalties. Avoiding these situations also gives you more leverage when your card issuer attempts to raise your interest rates.

• Make bigger payments. If it isn't realistic to pay off your credit cards, try to make bigger monthly payments. The smaller your debt balance, the less leverage the card company has over you.

• Hit the pavement. Start looking at other credit card options. You might find a good deal by walking into a local credit union or community bank; many of these institutions have managed to side-step a lot of the industry turmoil.

• Negotiate. If a card issuer tries to increase your interest rates, call them up and negotiate. Let them know that you can take your business elsewhere if they won't reconsider.

• Don't put yourself in a corner. Give yourself time to find a new card issuer, and get approved for an account. Instant approvals aren't the norm any longer, so plan on waiting a few weeks to receive your new card.

There's only one foolproof way to avoid getting hit with increased interest rates and fees, and that's to kick the credit card habit completely. If you make this your long term goal, you can eventually wash your hands of the whole thing.