Dealing with credit card debt interest rate hikes

Changes that are coming soon may have some credit card companies changing interest rates on credit card debt.

Some new regulations from the Credit Card Accountability, Responsibility and Disclosure (CARD) Act take effect on August 20 of this year. One of those is that card companies will have to give customers an advance notice of 45 days prior to making changes in interest rates.

As a result, some companies are trying to change rates prior to regulations taking effect. In a recent column for USA Today, Sandra Block noted the best thing for cardholders to do is try and pay off their balance prior to a rate increase.

Barring that, however, Block said card holders have two options. If the increase isn’t very high, card holders may decide to pay off their balance under the new rate.

However, many of the rate increases on credit card debt are rather high. As a result, some card holders may choose to opt out of the rate increases and pay off their debt under the old rate. Once the card is paid off, the card company will probably close the account.

Closing accounts, however, could affect a card holder’s credit score because it will increase their credit utilization ratio. The ratio is determined based on the amount of credit a card holder has and how much of it is in use. Lower percentages are better for a cardholder’s credit score.

The Credit CARD Act, which was signed earlier this year, will take full effect in February of 2010.