Part 3: Answers to your credit questions

Here’s the new installment of answers to your credit questions,  provided by Consumer Credit Counseling Service of Greater Atlanta.

Please return Wednesday for more answers.

Q: Recently I had a credit card that went from 12.99 percent interest to 29.99 percent. With the interest rate being increased, this caused my account to go over the limit, at which time they also added an extra fee for being over the limit. When I contacted the company I was told that they could do this as their company had problems with people paying. I asked the cistpmer service rep to check as I had never been late, never been over my limit, and always paid more than the minimum. The answer was yes you have good credit, but they raised the rate because a new law is coming into effect in February. I was told there was nothing I could do. I used the card over Christmas, but I wasn’t expecting the extra fees. What can I do?

A: Counselors at CCCS are hearing similar stories from clients in advance of the Credit Card Act of 2009 becoming law next month. Your best option may be to shop for another card with a lower interest rate. Go to www.Bankrate.com and you’ll find a wide range of credit card offers. Once you find an offer with a more favorable interest rate, call your current credit card company and ask them to match the offer. If they decline, consider opening an account with the lower interest credit card and transferring the higher interest balance.

Q: I recently transferred balances from two credit cards to one and worry about the issuers of the other two cards canceling my accounts or lowering my available balance. Should I use each card for small purchases that I can pay off at the end of each month to help boost my credit score and keep the accounts open? My credit score is currently in the excellent range and I’d like to keep it there.

A: The strategy of using your two older credit cards for small purchases and then paying the balance quickly is a good one. Some creditors will look at a balance transfer as a negative credit event because the card holder has increased the overall amount of credit available. In the creditor’s view, that means more exposure because it’s possible the customer’s debt load could grow substantially. So demonstrating you can handle the larger overall credit limit should help.

Q: I have over $80,000 in crfedit card debt due to some bad business decisions, with payments of over $1700/month. Is there a way to negotiate them down without going through a bankruptcy? My credit is very good, but our income is down, and I’m not sure how long we can continue. We have zero late payments on our credit report, so we are not behind, but I don’t see how we can keep this up. We already have a second mortgage.

A: This advice is too late to help you now, but in the future you should avoid taking on personal debt for business ventures. The sound way to launch a venture is to set money aside you can afford to lose until you can afford to open your business. Or you can create a company that borrows the money, so you are protected personally.

To take the first step to resolve your situation, you should get help from a credit counselor to help you review all of your options. It could be that a Debt Management Plan, which offers lowered interest rates, will be a better option for you than bankruptcy. To find an accredited nonprofit credit counseling agency, go to the Web site of the National Foundation for Credit Counseling at www.nfcc.org. Or, you can schedule a free and confidential budget counseling session with CCCS at 1-800-251-2227.

Q: Nine years ago I (foolishly) took out a 15-year boat loan. Payments have been made for nine years and the original amount has been paid back. My wife and I have since lost our jobs. We sold our house at a break-even point, moved from water access and downsized to a rental. Our fixed income often means making this boat payment or going very light on food, necessary medications and delaying some utility payments. We tried to sell the boat with no luck. We tried to work out a loan modification, but the bank only offered to extend the length of the loan for a monthly payment of $50 less. We cannot afford that payment, or the insurance or the storage fees, or the gas, even if we wanted to use the boat, which we have not in 1.5 years. What will happen if I voluntarily give the boat back to the bank?

A: You don’t say if the boat is worth less than you owe, but this answer will be based on that assumption since you wouldn’t be in a fix otherwise. If you voluntarily give the boat back, the likelihood is the bank will auction it off at a fire sale price and you will be liable for the difference between the sale price and what you owe. The bank can sue you to recover that difference. You should try to avoid this outcome.

First, make sure you have made your financial situation clear to your lender. Gather up last month’s bills and receipts that show your living expenses, as well as documents that show your income, and make an appointment with your bank to prove you cannot afford the payments they are offering you. If they still won’t accommodate you, go to a local credit union and try to refinance the boat in a way that the payments are affordable to you.

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One comment Add your comment

Michelle T

January 19th, 2010
1:05 pm

I had an experience similar to the one presented in the first question. Smimmons First raised my APR from 9% to 20%, which put me over limit and cost me a ton in fees. After arguing with them for weeks on end, I decided to just pay off the entire balance and get a new card for my day-to-day expenses. I got a new Capital One card on http://www.creditcard321.com/ and they’ve been great to me so far. I’m happy I made the switch too because now I’m getting some nice cash back rewards on my purchases. Lesson learned? If your credit card company is treating you like garbage, there are other credit card offers out there. Make them pay for the way they treat you and don’t give them your business anymore!