Here’s what credit card companies can and can’t do â€” and what you must know to reduce your costs and protect your credit rating.
Watching Your Credit Card Debt Stack Up?
As the economy continues to sputter along, I’ve been hearing a small but growing chant throughout the land (think Horton hears a ka-ching) that goes like this: You’re mad as hell and you’re not going to charge it anymore! Or at least that’s the dream.
You’re sick of lugging around massive amounts of credit card debt. The good news is that just as you’re reading the words on this page, brand-new federal regulations are kicking in that will help you kill off your debt. The bad news is that your credit card company may already have hiked your interest rate in a last-ditch effort to make money off you. So it’s important to understand exactly what the changes mean for you. Here’s what credit card companies can and can’t do â€” as of February 22 â€” and what you must know to reduce your costs and protect your credit rating.
Don’t Take a Hike
1. They can’t raise interest rates on debt you’ve already racked up. The one exception: They can hike rates on these existing debts if your payment is more than 60 days late.
Your takeaway: You must pay on time. Every time.
Get Interested in Your Interest Rates
2. If your card charges you different interest rates (say, 14 percent for existing balances, and 2 percent for balance transfers), they must apply your payments to the debt carrying the highest rates (i.e., the 14 percent) first.
Your takeaway: The faster and more you pay off, the more money you save.
Be Punctual or Be Punished
3. They can’t raise your rates if they find out you’ve been late on other credit cards or loans.
Your takeaway: A slipup on one bill can no longer automatically trigger higher rates on other cards and loans. But it will hurt your credit score, which can eventually lead to higher interest rates and a tougher time getting credit and loans. Again, don’t be late.
Know Your Limit
4. You can no longer go over your credit limit â€” and be charged the subsequent fees â€” unless you notify your credit card company in writing that you’d like to spend more than your limit.
Your takeaway: Don’t ever opt for the “right” to go over your credit limit; it’s a costly convenience.
Don’t Do the Bare Minimum
5. They will tell you â€” on your bill â€” how long it will take to pay off your debt and how much it will cost you, including interest, if you pay only the minimum each month.
Your takeaway: Get ready for a reality check. If you owe $5,000 at 16 percent interest and you make only the minimum payments, it’ll take you nearly 18 years and $9,856 in interest to pay that off! Add just $20 per month to those minimums and you’d be debt-free in a little over eight years and have paid $3,922 in interest. Paying even a little more than the minimum will get you out of debt faster and cost you less in the long run.
Make Sure the Underage Don’t Get Carded
6. Those under 21 years old won’t be able to get a credit card unless they show proof of income or get an adult to cosign.
Your takeaway: If your teen is nudging you for a card, say no to cosigning. His or her slipup can mess up your credit score for years. After all, if your child wants spending power, he can get something called… a job.
And that brings me to the most important change of all: our attitudes. Though credit cards have become ridiculously complicated over the years, the most important rule is as simple as it gets: Don’t spend money you don’t have.