Rate reduction

Even though the Fed has raised rates, you can find the best deals for your credit cards

Here’s a dicey scenario: You’ve maxed out your credit cards, and learn the Fed has hiked interest rates another 50 basis points. Effectively, the annual percentage rate (APR) on your card has jumped to a whopping 17.04%. Well, don’t panic just yet. There are steps you can take to manage and, yes, even eliminate credit card debt.

According to Luther R. Gatling, president of the New York City-based Budget and Credit Counseling Services Inc. (BUCCS), there are several steps you can take to combat rising credit card rates. First, negotiate with your credit card company. Says Gatling, if you’ve been paying your bill on time, simply make a request to have your APR lowered. Most companies don’t want to lose good customers and will be open to such adjustments (see chart).

If that doesn’t work, consider transferring the balance of your card to a card with a lower interest rate. But experts caution you to read the fine print on such agreements. Oftentimes a company will allow you to switch to another card, but that rate will only apply to the amount of money in the account that you transferred and not to future purchases. The lower rate may also be slated for a fixed period of time. Make certain you’re getting the complete package-a deal that includes debts from your existing account as well as those accrued from future purchases-and a clear indication that rates will not escalate over time.

Jumping from one credit card to another, however, can hurt your overall credit rating. According to Steve Rhode, president and co-founder of Myvesta.org, a Rockville, Maryland-based nonprofit financial solutions organization, balance transfers are often viewed by creditors as cash advances with higher interest rates accruing from the first day.

Another option is to consider a secured card. Secured cards, which are backed by your own money, can often carry interest rates of as low as 14% (see chart). Once the secured card company reviews your payment history with them, it will return the initial deposit plus any interest you’ve accrued.

Pay off credit card balances in full whenever possible. Gatling believes most people have too many credit cards. He says the average person should have three credit cards: one easily paid back in 30 days; a revolving credit card with an interest rate that is much lower than a store credit card; and a debit card that works like an automatic check.

Overall, credit cards are a good, safe, and convenient tool when used as a convenience. To combat rising interest rates, keep only the absolutely necessary credit cards and maintain balances at a level where they are easily managed on a monthly basis.

Personal Credit Cards With the Lowest Interest Rates

Institution/Card APR* Fee Grace Period Phone Number Website
Pulaski Bank & Trust/Mastercard Personal Standard 8.75% $35 25 days from billing 800-980-2265 www.pulaskibank.com
Wachovia Bank Card Services/Visa Personal Classic 9.50 88
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