Debt Reduction Advice | Debt Reduction Advice

The CARD Act was designed to protect consumers from credit card practices that left many people blindsided and on the wrong side of the balance sheet. For years, credit card companies were able to raise interest rates and assess fees solely that their discretions. While the CARD Act included many rules that would limit these behaviors, such as requiring credit card companies to give consumers a minimum 45-day notice of any changes to their accounts (e.g. interest rate increase) and at least 21 days to pay their credit card bills, several credit card traps remain of which you should be aware:

INTEREST RATES: Credit card companies can still raise your interest rate, even if you make all your payments on time; if you have a fixed-rate credit card, the only requirements for doing so is that they provide you with 45 days advance notice and you have had the card for more than a year. In addition, if you have a variable rate interest card, it can happen even easier. While the credit card company still has to provide you with 45 days notice, your variable credit card interest rate is likely tied to an interest-rate benchmark; when it goes up so will your interest.

CREDIT LIMITS: Further, credit card companies can still cut your credit card spending limit or even close your account, both of which have serious ramifications on your credit score. Credit card companies explain this practice by advising that they routinely reevaluate their credit cardholders’ accounts and adjust limits based on the customers’ ability to repay. This may sound benign enough, but if your income is constricted (e.g. job loss, decreased business revenue/earnings), do not be surprised if your credit limit drops from $4,000 to $500, if your account is not closed altogether.

RAISING FEES: Lastly, while the CARD Act caps the fees a credit card company can charge at $25, there are many other ways credit card companies can levy fees. Many credit card companies are assessing annual fees while others are raising balance transfer fees, cash advance fees, and/or foreign transaction fees. In addition, credit card companies are still free to invent fees.

Regardless of your specific situation, there are two things you must do to prevent falling into one of these credit card traps. First, read your mail. Before your credit card company can change the terms of your contract in any way, they have to notify you in writing, which means by mail. Second, have a contingency plan for what you can do if your terms swell to an unfavorable point. Make sure that you keep your balances as low as possible. Also, keep at least one other credit card available, just in case.