Be careful opting out of your credit card's new interest rate

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credit cardsYou can opt out of that insane credit card interest rate -- but be careful out there.

That's the premise of a clever article at CreditCards.com, which takes a unique look at opting out of your credit card. As Tamara E. Holmes points out, the Credit CARD Act of 2009 allows people to avoid higher payments by refusing to accept the new interest rate. But by opting out, you still have to pay the remaining balance, and your credit card is still active. And because of that, if you aren't careful and wind up making a purchase, your carefully protected interest rate could wind up shooting up to the one you opted out of.

It's a little like having a time bomb in your wallet.I don't want to steal the entire article's thunder, so if you want to read it (and I'd recommend it if you've opted out of a credit card), please click on the aforementioned link. But the main lesson it imparts is this: If you're going to opt out, don't just opt out and forget about it. Make sure you go all the way.

First, cancel any automated bill payments that might be set up with the card because the last thing you need is to opt out in November and in January have your credit card automatically pay some annual bill you arranged to pay last January.

Also, take the canceled card out of your wallet and either cut it up or stick it in your freezer -- put it somewhere, where there's no chance of you automatically reaching for it and confusing it with one of your active cards.

Of course, if you haven't opted out of a credit card - and didn't even know you had that option - you may be wondering if you should. That's up to you to decide, and it really depends on how deep in debt you are.

Yes, it might hurt your credit score. Let's say you have a credit card with a $10,000 limit and you currently owe $4,300. If you opt out, your credit card will likely reduce your limit to its current balance, and that could hurt your credit score because lenders see that as a card that's maxed out.

On the other hand, if your payments are going to jump another $100 or $200 a month because of some crazy interest rate and you're going to have trouble making those payments, your credit score may wind up getting damaged anyway. In fact, if you're deep in debt and having trouble making payments already, you might wind up with far more problems if you don't opt out.

It's not a fun decision.

Geoff Williams is a regular contributor to WalletPop. He often writes about banking and credit issues. He is also the co-author of the upcoming book, Living Well with Bad Credit.
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