Q: I’ve sort of been following the new credit card laws in the news and I know that the bulk of the CARD regulations are already in place. My question is this: How do they help and how can I get the most of the new credit card rules? - Pat Durkin, Chicago
A: Your timing is good. July marks the final implementation of all of the new Credit Card Accountability Responsibility and Disclosure Act regulations.
Overall, there are some good protections and some helpful ways to take advantage of the new rules. That said, there are also some pitfalls to consider.
"The new credit card rules can help consumers avoid debt or repay debt faster," explains Kevin Gallegos, vice president of San Mateo, Calif.-based Freedom Debt Relief. "These laws benefit consumers by requiring credit card banks to provide consistent due dates for bills, charge fair fees and clearly explain how long repayment will take. But no law can protect consumers from themselves when people make poor decisions and fall too deeply into debt."
Gallegos points to a recent Federal Reserve survey that says 46% of U.S. families carry credit card debt, with revolving debt totaling $838 billion by April 2010. That’s about $17,000 per U.S. household.
Freedom Debt relief advises card consumers not to spend more than 15% of their after-tax income on servicing overall debt. But the company says that it’s seeing more and more customers with debt loads higher than that, making it all the more difficult to pay off credit card debt — or even make a minimum payment.
Can the CARD Act help? The credit management firm advises taking these steps to take full advantage of the new card rules — and to improve your overall credit card management situation.
- Pay more than minimum payments. By carefully reading credit card statements, borrowers can see how much they must pay each month to get out of debt faster. Credit card bills now include information on how long it would take to pay off a balance while paying only the minimum.
- Monitor due dates. The CARD Act requires lenders to set a consistent credit card due date each month. By paying attention to the date, borrowers can avoid late payments, additional fees and higher interest rates.
- Avoid overdraft option. With the CARD Act, borrowers' cards cannot be charged past the credit limit unless the borrower specifically has opted in to permit those charges. By opting in, consumers expose themselves to potentially high fees and increased interest rates.
- Some other tips. A key provision in the CARD Act mandates that credit card companies apply your payments to the part of your bill with the highest interest rates. For example, if you have a card balance of $5,000 with an 18% interest rates and $5,000 at a 10% interest rate, your payment must go to the 18% figure first. So know that by paying more, your payment is going toward your biggest credit card liability.
Also, make sure to keep an eye on your monthly card statement. It’s always a good idea to read it, so you know where you stand with your card carrier. But take an extra moment to check how fast you can pay down your credit card debt if you jack up your monthly payments. The CARD Act mandates that card companies carry this information on your statement.
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