The Wall Street Journal reported today that Bank of America is raising interest rates on 4 million US Credit Card customers who are carrying a balance. This means that even if you have always paid your account on time, you can expect your rate to go up if you don’t pay off the balance at the end of each month. WSJ reports:
“Starting with June account statements, any credit-card customer who carries a balance and has an interest rate below 10% will see his or her rate jump into double-digit territory.”
“The bank's move follows similar rate increases that other banks, including Citigroup Inc., JP Morgan Chase & Co., and American Express Co. have implemented in recent months. The banks, facing rising delinquencies, blame the economic turmoil. Many have been tightening the screws on people with less-than-perfect credit, but now they're pinching a broader range of customers who have good credit records, but carry a balance.”
The underlying lesson is that credit card companies are not your friends, even though they lay down the red carpet on your first date. They appear so generous and helpful and always seem to ride in on the white horse at the perfect time. Whether it is at the department store when you have way too much stuff in your arms and they generously offer you a 10% discount for becoming their friend or when a 0% balance transfer arrives in the mail serendipitously to convert your Citi card at 29.99% to a lower rate.
Having spent much of my own life racking up credit card debt, I have a new vantage point now that I have made a commitment to pay for everything in cash. Hindsight is 20/20. If I couldn’t afford to pay cash on the spot, how could I afford to pay for whatever I was buying with 29% tacked on top? The math does not work, but I guess it is because I never stopped to do the math. I was having too much fun shopping.
I once heard a catchy little phrase that helped me to see what I was actually doing,
Buying things I do not need
With money I do not have
To impress people I do not know
Tomorrow I will share a strategy to get out of debt as quickly as possible, because as we have seen, the furnace is only going to get hotter with major credit card companies turning up the heat.
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