My neighbor decided to bring his friends home and continue the party last Friday night. They cranked up the stereo at 3:00 a.m. and didn't stop partying until I was able to get the police to knock on their door at 5:30 a.m. Needless to say, my night's sleep was destroyed. I had to go and teach a class at UT from 9:00 to 3:00, so you can imagine how I felt and how effective I may have been. My neighbor probably slept until noon and prepared to repeat the party the following day–which he did! I suffered the hangover, without the benefits of enjoying the party.

 

This month, many of you received notice from your credit card company that they are increasing the rates charged to as high as 29.98 %. We are experiencing the hangover from years of our neighbors partying with low interest rates and high balances as well as a high default rate. The average credit card balance has been reported at $8,500. Basically, many people in this country just don't think they are responsible for their debts. "It's not my fault. They should not have given me so much credit that I can't pay my bills!" You have the option to opt-out of your card (cancel) or be subject to the new rates.

 

What's at play here? Is this just a grab for profits by the big banks–some of which were bailed out by your tax money? Or is this a subtle way of restructuring their client base? You can go to sites like www.bankrate.com or www.creditcards.com to compare rates. You can see other cards that charge lower rates and will probably see your existing credit card company promoting lower rates than you have been quoted. How can this be? If you look closely one of the criteria for these low rates is excellent credit.

 

It's a simple process. Instead of asking millions of customers to provide additional financial information, evaluate the data, and send out cancellation notices, the companies have decided to motivate you to cancel your cards (opt-out) and then have you reapply under new, stricter guidelines. That makes most of the process automated. If you're a marginal client and transfer your balance to someone else, that's a risk management bonus for your old carrier.

 

If you're like me and have several cards in order to build a large pool of ready cash for that "deal of a lifetime," but you always pay your bill each month, then the increase is not a problem. Only a matter of principle, which may be enough to cancel a card that's a serious offender. After all, at some time in the future these rates will come back down, again. So, you may want to take that card with a high credit limit and put it in the drawer until rates come down or you until get a letter reducing your credit limit.

 

What do you do if you need a credit card to get you from month to month but can't pay it off every month? You can go to one of the sites mentioned above, or even better, check out your local area credit union. These organizations are member owned and have always had conservative lending policies. They have not sustained the massive losses of major banks and credit card issuers.

 

For example, the UT Federal Credit Union in Knoxville currently shows two VISA cards on their website. One has a rate of 8.25%; the other is as low as 3.25%. Both cards do not have an annual fee.

 

But, most of all, this serves as a wake-up call on credit card use. Learn to save for future large purchases or the holidays. Layaway plans, a mainstay when I was growing up, are experiencing a surge in availability.