Dear Liz: I just received rate increases on two of my credit cards that are together going to send me into bankruptcy. I didn’t think it could happen to someone who has perfect credit, has not maxed out the card and has been steadily reducing the balance and not charging anything, but obviously it can. I had every intention of repaying my debt, but these arbitrary increases — which will add $600 a month to my payments — have made it impossible.
I feel foolish for having this debt at all, but I lost my mortgage business and my husband is in construction. We have had a really bad four years. If they had just allowed me to continue making the payments per our original agreement, I would have been able to continue reducing the balance and they would get their money. This way, they won’t receive any money at all. How does this make sense?
Answer: Credit card issuers know full well that their latest rate increases will send some of their borrowers to Bankruptcy Court. What they’re hoping is that they’ll get enough interest from those who can still pay to offset the losses from those that can’t.
All may not be lost. Many issuers who have instituted these rate hikes offer an “opt out” provision that would allow you to keep your original rate if you agree to close the account. You should contact your issuers to see if this option is available. Closing accounts can ding your credit scores but will cause far less damage than a bankruptcy.
Be realistic about your financial situation, however. The amount of the proposed payment increase indicates you’re carrying substantial debt on those cards. Unless your financial situation improves dramatically, it’s probably only a matter of time until a misstep or another change in terms causes you to fall behind.
If that’s the case, bankruptcy may be a better option than continuing to struggle with debt you’ll never repay.