You might have heard that there is a new federal credit card law that has taken effect – the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The intent is a great one because many of the profitable (and abusive) practices of the credit card companies are now banned. For example, interest rate increases can now only affect new purchases, not balances, and the new rate only goes into effect if you’ve missed a payment beyond 60 days. That’s great news. The bad news though is that these sorts of tactics are expected to cost the credit card industry over 12 billion a year in lost revenue and so now credit card companies are creating new ways to go after your money. Some, for example, are tacking annual fees to your account.  In reality, the new law really benefits people that don’t really have any credit right now. If you had a balance before the law took effect your debt may have just become more unmanageable. Here’s why:

 

Before the law took effect, credit card companies raised interest rates because they knew it was going to get much, much harder for them to raise rates.  In other words, there’s a good chance that you may already be paying a much higher interest rate than you were before the law took effect.

 

Take me for example. I had a CitiPremier credit card with an interest rate of about 9% and sometime at the end of 2009 I get this letter stating that the new interest rate is now going to be 29.99% on the current balance!  They gave no reason whatsoever. I’ve never been late, and I’ve paid more than the minimum.  You’d think they would want to do whatever they could to maintain my loyalty. Instead, they turn around and give me a 20% rate increase.  I immediately closed the account. Yes, many financial advisors will advise that closing credit card accounts is not a good idea, but in this case I felt the rate was obscene. So check your statements, because there is a good bet you’re paying a higher rate and may not even know it.

 

Say you owe $10,000 on a credit card, and prior to the changes in the law, the card had a rate of 9%.  The minimum payment was $150 a month. At that rate, it would have taken you about 7 ½ years to pay off your balance.  Now, let’s say your rate has been jacked up to 29.99%.  Given the much higher interest rate, you decide to pay more than the minimum each month.  Even paying $100 more than the minimum - $250 a month – it would now take you 20 years to pay off that same $10,000 balance!

 

I’m all for credit card companies giving people credit so they can buy items they need, but I believe it is outrageous that credit card companies have gotten away with raising rates on balances for items that you bought at a much lower rate! Imagine if car companies did that!

 

My advice – review your statements closely because credit card companies are now required to advise you what it will cost you to pay over the long term.  The credit card companies don’t like that because they know what’s going to happen. You’ll see the truth that they don’t want you to see. The truth of how much they are ripping you off. 

 

 

If you are finding that your credit card debt has now become unmanageable, bankruptcy may be something to consider.  Feel free to contact me to discuss your financial situation.  I’d be more than happy to help.