Insight News

Feb 14th

Limit credit card use

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The U.S. government is headed towards drastically restructuring the way credit card companies do business and, in turn, easing a heavy financial burden carried by so many Americans. Congress has approved, and the President is expected to sign, legislation that will, among other things, control sudden credit card interest rate increases and late fee charges. Of course, the credit card industry is not happy with these new restrictions and will look for new ways to generate profits. So, even the new law will protect consumers, individuals must still exercise restraint when using credit cards.

The average American household income is $50,233. Average credit card debt in each home is nearly $10,000. To pay off outstanding credit card bills, Americans would have to shell out over 22-percent of their income. Irresponsibility in the way consumers use credit cards - charging more than they can afford to pay off at one, paying late and incurring late fees among them - is partly to blame. So too, however, are the strategies credit card companies have used to ensure they make a tidy profit off of your debt. The new legislation cracks down on those often dirty tactics.

When the law passes as expected, banks will be required to send out credit card bills to customers no later than 21 days before the due date. As pointed out by the New York Times in a recent article, some companies send bills with little lead time, hoping customers won’t get their payment to them in time so they can charge them a late fee. Under the new law, banks will also be forced to wait until customers are 60 days late in making a payment before applying a penalty –higher - interest rate to their existing debt.

Companies will also have to give 45 days’ notice before raising their interest rates, as well as notify consumers about any major changes to the credit card’s terms of use agreement.

It will also be much harder for students to obtain credit cards. In the past credit card companies spent lots of time on college campuses, giving out freebies and encouraging young people, who lack responsibility needed to manage debt, to apply for a credit card. Under the new law, no one under the age of 21 will be able to have a credit card unless a legal guardian is the primary cardholder. Students with jobs must prove they have income and obtain a co-signer on their account. Once a card is granted, parents must approve, in writing, any increase to the amount of credit extended.

America’s financial foundation is shaky and not just because of the housing or banking crisis. The personal credit crisis – and consumer’s inability to pay their debts - played a key role in the deterioration of the nation’s financial health. Going forward, we as consumers must exercise restraint in spending and turn a blind eye to credit card offers that seem unfair. We must not let the greed and irresponsibility of the credit card companies and our own credit management issues put our families, our communities or our country into financial hardship.


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