New Rules for Credit Cards: If You Live Paycheck To Paycheck, Pay Attention
Earlier this year, the Untied States government displayed their affinity for the American consumer by passing the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. Read all the details of the CARD Act straight from the White House. When this new law goes into effect over the course of the next several months, consumers will be protected from shady credit card practices like abrupt rate increases, retroactive rate increases, and double-cycle billing.
As a result, credit card companies are not looking forward to February 2010, the month by which all new regulations will be in effect. Either spurred on by anticipation of this date, today’s economy, or a combination of the two, issuers are taking the opportunity right now to make life in debt worse for consumers.
Credit: notmpres
What issuers are doing now
USA Today recently reported credit card companies have been raising interest rates across the board. In addition to raising interest rates, card companies are raising minimum balance requirements. This is an important point to note. Superficially, this looks like a good move. Higher minimum payments — say 5% of the balance rather than 3% — force consumers to pay off their debt faster (assuming no change in interest rate). Getting out of debt is a good thing, right?
If you are in the process of getting out of debt, possibly using a method like the debt snowball, debt avalanche, or another weather-related metaphor, an increase of minimum payment amount on one or more credit cards will actually slow the debt repayment process unless you are able to designate more money for getting out of debt. For families living paycheck to paycheck, the increase of the minimum payment makes a cash flow strain even worse.
What you can do
Anyone relying on debt must face these new realities. The best you can do is shop around for better credit card deals and move balances, but that can only take you so far. With changes coming from all companies, you may have to adjust your lifestyle to deal with the increased cash necessary to dedicate to repaying your debt. In general there are two solutions: decrease your expenses or increase your income.
Most people find decreasing your expenses to be the easier approach. Track your expenses for a month, whether you pay with cash or credit, to determine the biggest opportunities for saving money (I hear they write free software to help you achieve this task). That $5 latte? Cut back for a few months. Consider generic, store or off-label brands for products whose quality is similar to major brands. After looking at your spending, you’ll be in a better position to create a budget that will help prevent you from spending more than necessary.
With the reality of the economy, the situation will get worse for those who rely on credit cards before it gets better. Combine these suggestions for reducing expenses with creative opportunities for earning more money, and you’ll be on the path away from being part of the people hit hardest when credit card companies fish for money with higher fees and higher minimums, the paycheck-to-paycheck crowd.
Tags: CARD Act, credit card laws | Categories: Credit, Saving |
