Why Opting-Out May Not Be Smart

The Citibank interest rate increases are pretty bad. About Credit/Debt Management readers have reported doubled and nearly tripled rates. It's absurd, but cardholders are left with few options: try to negotiate a lower rate, opt-out, pay the balance asap, transfer the balance, or accept the new interest rate.

While opting-out lets you pay off the balance at the lower interest rate, it might not be the smartest choice since your credit card will ultimately be closed. Read 3 Reasons You Shouldn't Opt-Out before sending your card issuer your opt-out letter.

If you have a Bank of America credit card, you may have recently received notification of an interest rate increase. Unfortunately, you're now one of millions of credit cardholders that have their interest rate increased in recent months. Not too long ago, Citibank implemented a brutal rate hike on cardholders, doubling and even tripling interest rates in some cases.

As always, you can opt-out of the interest rate increase and, from what I've read (via Credit Matters Blog), Bank of America has a slightly attractive opt-out deal (if there is such a thing). If you opt-out of the interest rate increase, you have the convenience of paying off your credit card balance under the old interest rate as long as you don't make any new purchases. Your credit card will stay open after you repay the balance, assuming BoA doesn't change it's mind before then. If you use your card, either before or after you've paid off the balance, the new interest rate will go into effect.

What makes the opt-out more attractive is that you can pay off your balance at the old rate without having your credit card closed, which might have lowered your credit score. Of course, Bank of America stands to benefit, too. By keeping your credit card open, you're more likely to make a charge to your account than if it were closed, giving them a greater chance to make some money from the higher interest rate.

This is one time when opting-out might be a good idea. Just make sure you don't use your credit card until you've repaid the balance. Then, once it's paid off, make periodic purchases, e.g. every 2-3 months, with your card to keep it active and pay the balance in full when the billing statement comes.

Be careful about calling to ask for a lower interest rate. CreditMattersBlog.com has warned readers that Bank of America is known for taking information you reveal during those calls and using it against you. In fact, one commenter Hanadarko, says his sister was convinced to apply for a lower rate card, but ended up with a $1,000 credit limit reduction her credit limit reduced to just $1,000 above her balance! BoA reps should be reading your Miranda rights when you call because anything you say can and will be used against you.

Have you negotiated your way into a lower interest rate? Tell us how.