Financial Fresh Start

Your Five-Step Plan for Adapting and Prospering in the New Economy

 Financial Fresh Start

Author: Shari Olefson
Pub Date: February 2013
Print Edition: $26.00
Print ISBN: 9780814432297
Page Count: 320
Format: Hardback
e-Book ISBN: 9780814432303

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Credit Card Management Musts for the New Economy

Credit Card Management Musts for the New Economy

Critical CARD Act Facts for Responsible Borrowing

“Incredibly, more than 30 percent of folks who carry a credit card balance still don’t know how much interest they pay, almost 70 percent don’t understand their own credit card terms, and over a third say that they are not at all aware of the new credit card rules and reforms,” reports Shari Olefson, financial and legal expert. Among the most relevant new rules and reforms are those found in the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. Establishing more fair and transparent credit extension practices, the CARD Act is intended to protect credit card users. Yet, as Olefson explains in her new book FINANCIAL FRESH START (AMACOM 2013), its new rules and reforms have some unintended consequences. Here’s what every credit card holder needs to know about how the CARD Act impacts:

* Interest rate increases. The CARD Act prohibits credit card companies from increasing the interest rate on your existing credit card balance unless you have missed two of your credit card payments in a row. Credit card companies are still allowed to increase the interest rate for new purchases you make on your credit cards, but they now have to give you 45 days advance written notice. If you’re not on board with the interest rate increase, you can cancel your credit card during this period.

* Late fees. Under the CARD Act, your credit card company can’t charge you a late fee unless you have at least 21 days to pay your credit card bill. Additionally, your credit card bill now has to be due on the same date each month; as long as your payment is received by 5:00 p.m. on the due date, it is made on time. Now, if your credit card company does charge you a late fee, it has to be “reasonable and proportional” to your credit card agreement. The CARD Act includes a “safe harbor” to help define these terms. As long as your late fee does not exceed your minimum payment when due and is not more than $25 for your first violation and $35 for your second violation within six months, it will be considered “reasonable and proportional.”

* Over-limit fees. Before the CARD Act, your credit card company had carte blanche to process charges you may have made that were over your credit limit and then charge you an “over-limit” fee for doing so. About 12 percent of credit cardholders wound up paying these fees each year, without really knowing why. Under the CARD Act, your credit card company can only charge you an over-limit fee if you specifically “opt in” to allow your credit card company to process these over-limit transactions—and you can revoke your opt-in consent at any time. In addition, any time your credit company now charges you an over-limit fee, it must remind you, in writing, of your legal right to revoke your opt-in authorization.

* Credit card statements. Under the CARD Act, monthly credit card statements must include concrete information about how much using your credit card actually costs you—beyond the total interest you have paid for the year. For example, statements are now required to show you how much money you need to pay each month to pay off your credit card bill in three years and how much money you will save doing so, in comparison to making only the minimum payment each month. “If you are struggling with getting out from underneath big credit card balances, this is a wonderful new tool to incorporate into your fresh start,” Olefson observes.

* Extended introductory rates. The CARD Act requires credit card companies to keep introductory rates in place for at least six months, as long as you pay on time. “Take advantage of this new opportunity by using zero percent interest or low introductory rates to your fresh start benefit,” Olefson urges. “During that introductory period, put your monthly payments towards your balance and get it paid down or even paid off!”

* Rising interest rates. Interest rates in general are at all-time lows. Yet, since the CARD Act was enacted, interest rates charged by credit card companies have increased by more than 2 percent. That translates to an additional cost to credit cardholders of almost $17 billion a year!

* Balance transfer fees. Before the CARD Act, less than a third of all credit card companies had a maximum fee they would charge for transferring balances; now, virtually all companies charge a percentage of the balance amount transferred. What’s more, the average amount of fees actually charged to transfer balances since the CARD Act took effect has risen by nearly 1.5 percent.

* Rising minimum payments. Since the CARD Act took effect, six of the nine biggest credit card companies have increased the amount of the minimum monthly payment they charge. Why? “Presumably so they can charge you higher late fees and still be in compliance under the safe harbor contained in the new rules,” Olefson says.

* Tougher penalties for late payments. Five of the top nine credit card companies have increased, or plan to increase, the interest rates on new purchases if you are late on your payment. In the wake of the CARD Act, several credit card companies have also specifically reserved the right to increase your credit card interest rate if you are even a single day late in making your credit card payments. “Now more than ever before,” Olefson stresses, “don’t be late on your credit card payments.”

Adapted from FINANCIAL FRESH START: Your Five-Step Plan for Adapting and Prospering in the New Economy by Shari Olefson (AMACOM 2013).

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