Eliminate Credit Card Debt Before New Rules Take Effect

[Aug 15, 2009.]

 

Some of us need a little external motivation to get things done. Your house probably looks a little cleaner than usual when relatives come to visit. Your car looks spiffier when it’s your turn to host the carpool. And you probably tend to avoid fried foods for a few days before your physical. For Americans who want to get out of debt, company’s coming.

New laws that take effect in early 2010 impact the ways in which credit card companies can market and manage their products. The industry has already responded with some major shifts in policies and best practices, such as:

• Industry acclaim for credit card debt managers who rigorously review risk.


• Higher interest rates on balance transfers and promotional periods.


• Reduced credit lines, even for long time customers with strong credit histories.


• Fewer rewards, such as frequent flyer miles and cash-back rebates.


• Eliminating free T-shirts, frisbees, and other enticing credit card freebies.

As Americans, we often tell ourselves (and each other) that credit card debt is a necessary evil. Maintaining a credit card balance can often improve a credit score, which can help secure a better interest rate on a home loan. Making major purchases with credit cards often qualifies us for extended warranties and enhanced consumer protection. While paying with plastic offers benefits, keeping a high balance does little more than generate finance charges for lenders.

If rising interest rates and shrinking credit lines haven’t hit your account already, they probably will soon. And if you’ve been surfing balances from one zero-rate card to another, get ready to start paying interest on your credit card debt. Banks are no longer happy just to collect interchange fees from zero-percent accounts. Balance transfer initiation fees have grown to five percent at some lenders, costing a typical cardholder $500 or more just to move a $10,000 account among banks.

Therefore, it pays to eliminate credit card debt before rates climb even higher. Most Americans find success by using one or more of these debt reduction strategies:

• Consolidation loans can merge a significant portion of your credit card debt into a single, low-interest account with a trusted lender.


• Debt consolidation programs can organize existing credit card debt into a manageable monthly payment.


• Additional streams of income, such as a second job or a side business, can create revenue that you can use to pay down credit card debt even faster.

The rules of credit card debt are changing, whether we like them or not. For some of us, it means the end of a gravy train that allowed us to live well beyond our means. For all of us, it means a recommitment to putting our money back into savings or into goods and services that can help reignite the American economy. Just as popular culture once celebrated lifestyles of the rich and famous, don’t be surprised to see more news reports and television shows dedicated to showcasing Americans who discovered how to eliminate credit card debt. They could be the external motivation you need to make a budget breakthrough of your own.

 

About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.