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Close credit card or accept higher interest rate?
I have a credit card with a balance of about $9,000. (I've been slowly but surely paying it down from a high of about $15,000 -- haven't used it in a long time and don't plan to.) I've had the account for many years, and it's always had an interest rate of 5%. As I'm sure you've already guessed, they're now raising the interest rate to 9%, and changing it to a variable rate, so it could go even higher at any time.
I have the option to reject the new interest rate if I close the account, but this is my longest-held credit card, and it has a credit limit much higher than any other card I have ($17,000, compared to about $4,000, I think). It will take me a while to pay down the remaining $9,000 -- maybe 2 years. Would it be better to just accept the 9% variable interest rate, or close the account, which I imagine would hurt my credit score a lot?
Re: Close credit card or accept higher interest rate?
I wouldn't close it just yet. In addition to it being your card with the longest history, 9% is still AMAZING for a credit card interest rate right now. Most peoples' are being jacked up much higher. Hell, I don't have any as low as 9%, and I have great credit and no balances.
Additionally, if you close the account with a balance, you'll have no leverage from a customer service perspective as you continue to pay it down. If the account is closed and you're just paying on it, they have no incentive to keep you happy because they're already lost you as a customer. They'll be particularly disinclined to give you a break on a late fee if you lose a day sometime in the future (and we all do it every once in a while!), etc. No sense risking that.
Only the tiniest of emergency funds. It wouldn't even make a dent.