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GoCubsGo
Feb 22, 2010, 06:41 AM
Article Link (http://www.newsobserver.com/2010/02/22/351573/credit-card-changes-may-come-as.html)
Credit card changes may come as a shock

NEW YORK Your next credit card statement is going to contain an ugly truth: how much that card really costs to use.

Now, thanks to a long-awaited law that goes into effect today, you'll know that if you pay the minimum on a $3,000 balance with a 14 percent interest rate, it could take you 10 years to pay off.

"Jaws will drop," said David Robertson, publisher of The Nilson Report, a newsletter that tracks the industry. "I don't doubt for a nanosecond that it's going to give a lot of people a sinking feeling in their stomachs."


Personally I've been following this ever so slightly because I do have credit cards and I have felt as though this was an important step in the right direction. I think it's important to discuss here even since a common question is often to discuss the option of financing a Mac. In my opinion I've always found it funny that people would look for the cheapest way to get a Mac and then finance it over time. In that case the hunt for the discount is pointless due to the interest you pay (if that is the case).

Queso
Feb 22, 2010, 06:43 AM
Does anybody ever just pay the minimum for months on end though? Surely if you're reduced to doing that you already know your finances are screwed, hence this isn't going to be much of a shock.

GoCubsGo
Feb 22, 2010, 06:44 AM
A great number do and it has made the CC industry into quite the cash cow.

rdowns
Feb 22, 2010, 06:55 AM
Consumers should be very careful as banks are adding all kinds of fees to make up for the loss of revenue from the practices this new law prohibits.

Caveat emptor.

MacDawg
Feb 22, 2010, 08:08 AM
Does anybody ever just pay the minimum for months on end though? Surely if you're reduced to doing that you already know your finances are screwed, hence this isn't going to be much of a shock.

Sadly, I think many individuals and families are doing just this
Some out of ignorance
Others because they chose to ignore better judgement and continued to purchase

yg17
Feb 22, 2010, 08:10 AM
The minimum payment details are eye opening. I pay my card off in full every month, but I just got a statement from Chase with those new details. For my Visa that had a balance of $671.05. If I pay the minimum payment of $13, it would take me 9 years to pay it off and I would end up paying $1,203.

And that's assuming you don't make any additional charges to the card. If you're in the situation where all you can make is the minimum payment of $13, chances are, you're going to continue using that card to make ends meet.

Consumers should be very careful as banks are adding all kinds of fees to make up for the loss of revenue from the practices this new law prohibits.

Caveat emptor.

I don't know if this is new, perhaps they've always done this, but on my statement right above the minimum payment details, it says: "If we do not receive your minimum payment by the date listed above, you may have to pay up to a $39.00 late fee and your APRs will be subject to increase to a maximum Penalty APR of 29.99%."

They're basically penalizing you twice for being late.

Ridiculous.

eawmp1
Feb 22, 2010, 08:12 AM
1) On the good side - it makes credit cards more difficult for the college set
2) On the bad side - it doesn't do enough to prevent employed people from using credit as a loan. If you don't pay of credit cards every month, you need a lesson in personal finance. When I was growing up, the only people charging such exorbitant interest rates were loan sharks.

Gaelic2
Feb 22, 2010, 09:31 AM
Article Link (http://www.newsobserver.com/2010/02/22/351573/credit-card-changes-may-come-as.html)


Personally I've been following this ever so slightly because I do have credit cards and I have felt as though this was an important step in the right direction. I think it's important to discuss here even since a common question is often to discuss the option of financing a Mac. In my opinion I've always found it funny that people would look for the cheapest way to get a Mac and then finance it over time. In that case the hunt for the discount is pointless due to the interest you pay (if that is the case).
I have purchased 3 Macs the past few years and charged it on a interest free, one year credit card offered by Apple for financing. I have never paid a dime in interest. I'd rather keep my money invested, earning money, than pull it out to buy a Mac.

ucfgrad93
Feb 22, 2010, 10:34 AM
I have really curtailed my use of credit cards and am working hard to pay off the balances. They are definitely bad news.

obeygiant
Feb 22, 2010, 10:34 AM
I try to pay off the balance every month to avoid interest.

mscriv
Feb 22, 2010, 10:36 AM
Thanks for posting this Jessica. Hopefully this change in the system will educate people about the potential risks in using credit irresponsibly. Consumer debt can be a nasty business.

Gav2k
Feb 22, 2010, 11:06 AM
I'll be honest here I have several cc's and when I split with my ex I got shafted. Basically the payments and what I needed to live on exceeded my income so I done alot of digging and decided to fight a few.

Barclaycard as an example was around 2000. I stopped paying outright and requested a setlment figure which they were shocked by. A year on and hastle from 2 debt collectors (knowing my rights helped) I finally received a settlement figure of 760. 4 weeks ago they were demanding 3500.

Rodimus Prime
Feb 22, 2010, 11:35 AM
What is sad is most people do not pay off their CC in full every month. They carry a balance on them.

CC are a great tool if used correctly. My CC is a budgeting tool. It used to track what I buy and how much. I charge almost everything to my CC to get the cash back rewards but I pay off the card in full every month so I do not pay a penny in interested on it.
I think the only time to carry a balance on a CC is for an emergency for when you do not have the cash for it. Things like a car breaking down it is fine to charge it to the CC it was not expect and it can be used to float it but stop using that card until it is paid off so to minimize the damage from the interested.
I think a person should own 2-3 CC at most. You have a primary and a backup card you carry on you. The 3rd credit card sits in a desk draw at home. This CC is in case you wallet get lost or stolen because it does take a few days for everything to be replaced and gives you access to cash while you wait.

flopticalcube
Feb 22, 2010, 11:42 AM
What is sad is most people do not pay off their CC in full every month. They carry a balance on them.

CC are a great tool if used correctly. My CC is a budgeting tool. It used to track what I buy and how much. I charge almost everything to my CC to get the cash back rewards but I pay off the card in full every month so I do not pay a penny in interested on it.
I think the only time to carry a balance on a CC is for an emergency for when you do not have the cash for it. Things like a car breaking down it is fine to charge it to the CC it was not expect and it can be used to float it but stop using that card until it is paid off so to minimize the damage from the interested.
I think a person should own 2-3 CC at most. You have a primary and a backup card you carry on you. The 3rd credit card sits in a desk draw at home. This CC is in case you wallet get lost or stolen because it does take a few days for everything to be replaced and gives you access to cash while you wait.

Wow! Its like somebody has been looking over my shoulder! I do EXACTLY the same thing. Charge everything to get cash back (+warranty extension). Pay off in full. Keep a 3rd card at home.

Unfortunately, a lot of folks aren't in our situation. Given that most people live paycheck-to-paycheck, even small extra expenses can send you into a downward debt spiral. It takes a lot of discipline and a little good luck to get debt free.

Rodimus Prime
Feb 22, 2010, 12:22 PM
Wow! Its like somebody has been looking over my shoulder! I do EXACTLY the same thing. Charge everything to get cash back (+warranty extension). Pay off in full. Keep a 3rd card at home.

Unfortunately, a lot of folks aren't in our situation. Given that most people live paycheck-to-paycheck, even small extra expenses can send you into a downward debt spiral. It takes a lot of discipline and a little good luck to get debt free.

Well there are some very easy tricks to build up a savings which out it being too painful.
One trick is have automatic money transfer from checking to saving every payday or have part of check directly deposited into savings). While I had a job I had set up an automatic transfer with my bank that moved money from checking to savings every payday. The other thing I did was I started every month with set amount in checking which for me was $2000 so after the first paycheck of the month I would transfer all the money over $2000 into savings. If I did not have $2000 I would not transfer money from savings to checking but instead would see what cost I could cut the following month to fill in that hole and increase it.

Oh and $2000 was not a number I choose out of thin air but it worked out to be what a little over what my monthly cost were. This solve the problem of me having to deal with trying to stagger my bills around paychecks.

I figure the above out shortly after I started working and was having trouble adjusting to my new found income. It work out very well for me to build up my savings which has come in handing after get layoff but still burning threw it.

Queso
Feb 22, 2010, 12:44 PM
What is sad is most people do not pay off their CC in full every month. They carry a balance on them.
At the moment I'm carrying a balance over rather than paying it off, but only because bizarrely enough in my circumstances it's cheaper to do so. Thanks to buying another property I've hit a ceiling on the amount I can take out of my company this financial year without being hit massively for tax. The extra tax bill would result in a deficit amount several multiples higher than the interest charges that are accumulating on the debt in the meantime. Once I get into another financial year (in July) the tax charge will drop back to normal levels so I'll take the cash and pay off the debt then, and normal service can resume :)

rdowns
Feb 22, 2010, 12:54 PM
A look at how the credit card law affects key aspects of your account.

INTEREST RATES

THEN: Banks could raise the interest rate on an account at any time, including the rate on an existing balances, even if you weren't late on payments.

NOW: The rate cannot be raised in the first year after an account is opened unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change.

For existing balances, rates can't be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.

Story continues below
There's still no cap on rates.

DISCLOSURES

THEN: The fine print on cardholder agreements was often difficult to understand. Rates, fees and penalties for other services such as cash advances, for example, could be hard to find. The impact of the interest rate on paying down a balance was hard to compute.

NOW: Cardholders will see how many months it will take to pay off a balance if only minimum payments are made. Statements will also indicate how much needs to be paid each month to pay off a balance within three years.

SERVICE FEES

THEN: Banks could charge as much as they wanted. They could assess annual fees, activation fees and other fees. This was mostly a problem for subprime cards marketed to those with poor credit scores. One popular card, for example, the Premier Bankcard, charged $256 in first-year fees for a $250 credit line.

NOW: Service fees, such as activation and annual fees, will be capped at 25 percent of the credit limit during the first year of use. After that, there is no cap.

GRACE PERIODS

THEN: Some card companies sent out statements not long before payments were due, and sometimes shifted payment due dates from month to month, meaning that payments would not always have enough time to arrive and get processed before being deemed late. As a result, some cardholders ended up getting charged interest or late fees even when they thought they were sending in payments on time.

NOW: The law requires that due dates remain consistent. Statements must be sent out 21 days before the payment due date, and finance charges and fees cannot be applied before that period is up. In practice, about half of card issuers have extended grace periods to as long as 25 days.

OVER-THE-LIMIT FEES

THEN: Banks set credit limits, then routinely allowed charges to exceed those limits. When that happened, though, the customer was charged an over-the-limit fee as high as $39. These fees were often triggered by interest charges or late-payment fees that pushed a balance over the credit limit. What's more, multiple over-the-limit fees could get charged in a single billing cycle if the balance was paid down and another charge pushed the balance back over the limit.

NOW: The cardholder must specifically agree to permit transactions that exceed the credit limit. Only then can over-the-limit fees be charged. But the fees can't be triggered by other fees or interest charges. Only one over-the-limit fee may be imposed during a billing cycle. No over-the-limit fees may be charged unless the cardholder has specifically agreed to permit transactions exceeding their authorized credit limit. These fees can no longer be triggered by other fees or interest charges imposed by the card issuer, and only one such fee may be imposed during a billing cycle.

In practice, several of the largest card companies have dropped these fees. Some banks are using pop-up boxes on their Web sites or other methods to obtain consumer authorization.

UNIVERSAL DEFAULT

THEN: If you made a late payment on one credit card or loan, or even late payments for obligations like utility bills, that could trigger interest rate hikes on other credit card accounts.

NOW: Card companies cannot raise interest rates on existing credit card balances. Interest rates can't rise during the first year an account is open, unless the original agreement spelled out a promotional rate for a limited time.

Consumers with older accounts must be informed of any interest rate increase on new charges at least 45 days in advance. They must also be given a chance to opt out of the hike by canceling the account and paying down the balance at the old interest rate. If an interest rate is increased, the card company must review the account once every six months to assess whether the rate should be dropped.

STUDENTS

THEN: Students arriving on college campuses often confronted a gantlet of credit card marketers handing out T-shirts, pizza and other gifts in exchange for filling out card applications. Credit cards were frequently handed out without checking the applicant's income sources. In 2008, 84 percent of undergraduates had at least one credit card. Average balances topped $3,100.

NOW: Credit cards may no longer be issued to anyone under age 21, unless the applicant has a co-signer, or can show independent means to repay the debt. Colleges must disclose any marketing deals they make with credit card companies. Banks are not allowed to hand out gifts on or near campuses or at college-related events.

andiwm2003
Feb 22, 2010, 01:27 PM
Article Link (http://www.newsobserver.com/2010/02/22/351573/credit-card-changes-may-come-as.html)


Personally I've been following this ever so slightly because I do have credit cards and I have felt as though this was an important step in the right direction. I think it's important to discuss here even since a common question is often to discuss the option of financing a Mac. In my opinion I've always found it funny that people would look for the cheapest way to get a Mac and then finance it over time. In that case the hunt for the discount is pointless due to the interest you pay (if that is the case).

i have never carried any debt on my credit cards. that's just plain dumb (well not economical) unless you take advantage of the 0% APR deals AND you have enough discipline to pay off the card ion time.

all this new regulations are useless because they only deal with people having debt on their card. there is an easy fix: pay it off and it's no problem.

the regulations should be about hidden charges that can occure even when you pay off the card every month (international charges, cash withdrawals, security issues, online payments, costs to merchants, rewards points, insurance benefits and all that).

WildCowboy
Feb 22, 2010, 02:04 PM
All of these changes to limit the fees and interest rate hikes are going to hurt those of us who have enjoyed rewards programs. The credit card companies are going to have to make up any shortfall created by the new limitations, and that means fewer rewards for me. They've already been disappearing, and this will probably go a long way toward ending them.

My father was recently denied a credit card because the issuing company looked at his credit report and saw that he pays off his balance in full every month. So they denied because it "wouldn't be profitable" to have him as a customer. And of course that inquiry where the company found out he has excellent credit history resulted in a minor hit to his credit rating because the ratings companies view asking for credit as a bad thing no matter the circumstances.

pooky
Feb 22, 2010, 03:17 PM
All of these changes to limit the fees and interest rate hikes are going to hurt those of us who have enjoyed rewards programs. The credit card companies are going to have to make up any shortfall created by the new limitations, and that means fewer rewards for me. They've already been disappearing, and this will probably go a long way toward ending them.

Good. Reward programs are simple con-games designed to attract people to the card, where they wind up paying a bunch in interest and fees. They wouldn't be offered at all if they weren't profitable. Thus, people like yourself who come out ahead in the game can only do so by being subsidized by people who are less educated or less financially disciplined. The bank takes advantage of these people, and a few cardholders get to benefit as a result. If all cardholders benefit, there's no incentive and the company doesn't offer the program.

MarkCollette
Feb 22, 2010, 03:18 PM
Those minimum payment worst-case scenarios are useless. If your minimum payment is 3%, then as you pay down your debt, your payment amount goes down as well, until each payment is a ridiculously low amount, artificially prolonging the payback time.

What's more realistic is to ask, given the minimum payment amount, when your debt is at its peak, how long would it take you to pay off your debt, if you stuck with that payment amount throughout.

With this example, of $3,000 and 14%, you have an initial minimum payment of $90, so if you keep paying $90, then it would take 3 years and 8 months to pay it off. In my books, that's still a really long time, so it doesn't seem necessary to scare people with those inflated worst-case values, since the typical reality is already somewhat harsh.

http://debtmanagers.ca/debt-calculator.php