Another Small Savings, And A Dilemma

I got an offer yesterday from CitiBank. If I sign up for the "Payment Partners Program," it can help my debt reduction goals.

Here is how it works. I agree to make payments for 4 months on time and in excess of the minimum amount due. At the end of that time, if I've complied, Citi will credit my account with an additional amount equal to 20% of the amount I paid above the minimum due, up to $550 in "extra credit." If I pay $2750 extra, I'll get the maximum credit of $550. If I pay $100 extra, I'll get a credit of $20. I was already planning to send a little extra each month, so by signing up for the program it's like making an extra payment of up to $550, merely by doing what I am planning to do anyway. I liked the sound of that.

So, what's the catch?

They reassured me that nothing about the program gets reported to the credit bureaus, so the participation in the program itself will not adversely affect my credit score.

They also assured me there is no penalty for participation. It will not affect the interest rate on my account or any of the other payment terms.

They also reassured me that there is no penalty for noncompliance, other than not getting the "extra" credit, so if I fail to pay extra toward the debt, nothing bad happens. If I make a late payment, the usual consequences would apply, but nothing worse than usual. (The usual consequences are bad enough, really). Since I plan to pay on time, and was already planning to pay extra, I am confident I will earn the extra credit with no problem.

There are two things I have to give up to participate, both geared toward the idea that I want to make this a permanent debt reduction (I like the sound of that, too).

The first thing is, they will temporarily suspend my charging privileges on the account, so that I cannot make new charges or balance transfers to the card during the 4 month period. This does not bother me because the card is already charged up to its limit, and currently has a 0% interest rate on the current charges, but an 8.24% rate on any new charges, so I wasn't planning to use it, anyway. I am only planning to pay down the debt. Again, they reassured me that they do not report the suspension of charging privileges to the credit reporting agencies, so this will not harm me in any way.

The second thing I have to give up is a portion of my credit line. At the end of the program, they will reduce my credit line by an amount equal to the "extra" amounts in excess of minimum payments plus the 20% credit, so that I can't immediately charge the card right back up to where it was. Again, I wasn't planning to do that, so that's not a huge problem for me.

They also reassured me that they don't specifically report the fact or reason for the credit line reduction. BUT -- and this is a big "But" -- they do of course report the new credit line amount to the credit agencies.

This provision is the only potential pitfall. Your credit score is based in part on the ratio of available credit to actual revolving charges on each card. So, if you have a credit line of $10,000 and an outstanding balance of $5000, that results in a better score than if you have a credit line of $6000 and an outstanding balance of $5000.

Part of the way I was hoping to improve my credit score was by transferring some of the debt from my other card to Citi (which I did), and then paying down both credit lines to a better debt ratio. If Citi reduces my credit line, my debt ratio on that card does not improve.

On the other hand, Citi can unilaterally reduce my credit line any time they want to, even without "paying" me for the privilege. And if they are offering me this program, I am guessing that is exactly what they want to do. So I might as well get something for it.

So I signed up.

Wish me luck!!