Q: Lately, it seems as if the government is concerned only about people who have mortgages. I don't have a home loan—I've rented a home for myself and my two children for many years—but I do have credit card debt. My income is about $40,000 a year. I always make my monthly credit card payments on time, but I usually pay just the minimum. About half of that goes toward interest. Recently the credit card companies have decreased my credit limits or increased my annual percentage rate. I asked all of them to reduce my interest rates or raise my limits back, but none would do it. I know that lower limits are not good for my credit score. Is there anything I can do?
A: I hear your frustration. I could not be more disappointed in the credit card companies (and I am trying to be polite here). At a time when people are struggling to make ends meet, these companies are doing everything in their power to make things harder for customers. They are raising interest rates—some up to 32 percent—even for those who pay on time. And they pretty much have you trapped. Even if you pay down your balance, there's a decent chance you will still see your credit limit slashed or your unused account suddenly closed. American Express has offered $300 bonuses to some cardholders if they pay off their balances and close their accounts. The upshot is that even if you do the right thing, your credit score could drop. Remember, about 30 percent of your score is determined by comparing your unpaid balances to your total available credit limit. If that limit drops and you still have an unpaid balance (even if you have lowered it), your FICO score will fall. And it's not as if the federal government is unaware of all this. In late 2008, the Federal Reserve Board approved new rules that will limit the conditions under which credit card companies can ratchet up the interest rate on existing balances. But these rules won't go into effect until July 2010. Grrrr …they should be in effect right now! The hard truth is that in this situation, you need to help yourself. So here is my advice: Get in touch with the National Foundation for Credit Counseling ( NFCC.org ; 800-388-2227) to find an accredited counselor in your area adept at dealing with credit card repayment strategies. But as I explain below, you need to focus even more on building up a sizable emergency fund to protect yourself if you are laid off.
Suze Orman's most recent book is her 2009 Action Plan: Keeping Your Money Safe & Sound (Spiegel & Grau).