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Credit Card Debt Reform Making It Harder To Be Poor

[Apr 18, 2010.]

 

One of the most interesting voices in the financial world is Meredith Whitney. She made a name for herself a few years ago when ahead of most Wall Street analysts she predicted the commercial banking crisis. In an April 2010 interview with reporter Scott Cendrowski of Fortune, she spoke about how new credit card debt reforms will inadvertently make life even tougher on the poor.

Credit Card Debt Reform Could Make Borrowing Tougher

The new credit card debt legislation was designed to protect consumers. But Ms. Whitney believes it will also hurt them. Credit card companies are now required to give 60 days notice to customers before raising their interest rate. If banks believe a client is near default, and they are unable to raise their interest rate quickly, the companies will be less likely to extend credit.

Ms. Whitney believes that America is still over leveraged and that credit must necessarily continue to contract. "The unintended consequence [of reform] is that so much more credit is going to be taken out of the system," she says. She estimates that $2.7 trillion in outstanding credit lines will be closed by the end of 2011. With reduced access to inexpensive credit, she believes the poorest of the population will end up taking expensive loans, such as pay day loans.

There is evidence that this pull back in credit is already happening as Ms. Whitney predicted. In February, consumer credit fell $11.5 billion representing a 5.6% annual rate of decline. 13% of that annual drop was credit card debt. Economist (other than Ms. Whitney) had predicted only a $0.7 billion decline for February. The actual rate of decline has alarmed many of economists.

Consider Debt Consolidation to Get Out of Debt

The best solution, at this stage, is to get out of debt. The best way to get out of debt is to do some type of debt consolidation program. As credit becomes tighter and more expensive, you don't want to be at the mercy of the credit card companies. Plan ahead, so you are not among those who will end up with expensive pay day loans. Free debt consolidation programs are available. Find a free debt consolidation program.

Speak to a debt specialist today.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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