Switch lenders and stop charging to beat exorbitant credit card interest rates

Q. I just received my credit card statement. The interest rate is now 32 percent! Interest rates like this are clearly going to force many people into bad credit ratings, bankruptcy, or foreclosure.

Like many Americans, I can't save. Without caps on interest rates, I may never be able to save. This is loan-sharking. I read a lot of excuses, but I see no action to really help. What should I do?

W.P., by e-mail

A. That's very high. While I have no love for credit card companies, the real test here is how you respond. There are many credit offers out there. Typical interest rates are much lower. According to www.bankrate.com the average interest rate on all variable-rate cards is about 11 percent.

Move your account to a lower-rate credit card.

If you can't, there is probably a reason, such as spending more money than you earn. If you can't change to a card with a lower rate, I have a simple suggestion - stop using the card. Start making more than the minimum payment. Go on a cash budget.

It won't be easy, but it's the fastest way to stop feeling like a victim and start feeling in control.

Once you get your spending under control, you can reduce the amount of interest you pay in two simple steps. The first is getting a card with a lower rate. The second is to work the debt down to zero. As you do that, you'll enjoy a nice increase in purchasing power. A lender won't be skimming spending power off the top - your top.

Q. Why didn't the GNMA funds get hammered in the mortgage meltdown? I sold Vanguard GNMA shares a couple of years ago, expecting the price to fall, yet the price has been up slightly.

G.S., by e-mail

A. The big lever on mortgage-backed securities funds - such as Vanguard GNMA - is whether mortgage rates are rising or falling. When rates are rising, fewer people refinance and the average maturity of the bonds rises. When rates are falling, more people refinance and the average maturity of the bonds falls. More important, the fact that people have the option to refinance, or not, limits the potential appreciation of mortgage securities.

The result is a higher current yield than typical debt instruments - good for most investors.

Because GNMA bonds are government-guaranteed, neither credit quality nor default losses are an issue. Had you invested in other kinds of mortgage-backed securities, selling when you did would have shown great foresight because defaults have risen and the securities are selling at much lower prices.

If you check the performance of the Vanguard GNMA fund on the Morningstar website, you'll find it is a five-star-rated fund that has performed in the top few percentiles of all intermediate government funds over long investment periods. The fund has had only a few years of low returns, such as 1998 and 1993, when it was in the third and fourth quartiles of performance, respectively.

Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.