If the Debt Ceiling Isn't Raised, Your Credit Card's Interest Rate Will Be

If the Debt Ceiling Isn't Raised, Your Credit Card's Interest Rate Will Be

If the Debt Ceiling Isnt Raised, Your Credit Cards Interest Rate Will Be

July 26, 2011 by Beverly Blair Harzog 4 Comments

The folks in Washington are doing a lot of grandstanding about raising the debt ceiling. Im all for fiscal responsibility, but what the politicians arent grasping is what happens to all of us regular people if the ceiling isnt raised.

If the U.S. defaults, its predicted that our AAA credit rating goes down. Should that happen, the U.S. would then have to pay more to borrow money. This makes sense, right? If you, the consumer, dont pay your bills, then your credit score goes down and you pay a higher interest rate to borrow money.

So if the U.S. has to pay more to borrow, the prime rate that banks pay to borrow money to lend out to consumers goes up. And guess what happens when this increase makes it all the way down the food chain to the consumer? The vast majority of credit cards have variable rates and they go up and down with the prime rate. So if the prime rate goes up, your variable rate goes up by the same amount.

If youre hoping that the Credit CARD Act of 2009 will protect you, dont count on it. Even if youve had your card less than a year, when your rate is tied to an index, such as the prime rate, your bank doesnt even have to send you a 45-day advance notice.

But what if youve had your card for more than a year? Your interest rate is fair game. Ive been following the credit card industry for a long time and one thing is clear: The industry gets spooked easily whenever anything threatens revenue. Its possible that banks will raise interest rates even higher than the increase associated with the prime rate.

Oh, youll get the highly-touted 45 days notice, but your new, higher rate will be applied to purchases on the 15th day after the notice is mailed to you. You get 45 days before you have to begin paying the new rate.

Okay, I hate to sound like Im full of doom and gloom. I just want you to be prepared for whatever happens. The debt ceiling will most likely be raised, but if it isnt, open every piece of mail that your credit card issuer sends you. You really cant afford not to.

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If the Debt Ceiling Isn't Raised, Your Credit Card's Interest Rate Will Be

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Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

A consumer advocate, Beverly Blair Harzog focuses on credit card issues and provides insight about current news that affects the credit card industry and consumers. She’s a nationally recognized expert on credit card issues and is also the co-author of Confessions of a Credit Junkie. Visit Beverly at BeverlyHarzog.com .

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