The new credit card law makes many changes to how you are affected by creditors changes.
One of the most significant changes is how interest rate changes are handled.
The new law came into effect in February of 2010.
Prior to that credit card companies could raise interest rates on credit card balances for any reason or no reason at all. They called it Universal Default. You could be one day late on one of your accounts. That one single creditor may not have made any change in your account at all. But others seeing the late payment on your credit report were allowed to change their rates to the default rates. The default rates generally range from 24% to as high as 34%.
These rates could be changed anytime without warning. You can imagine the banks like getting the default rates. So they don't blink at grabbing them when they can.
The new law does not prevent that, but does change the method.
Now creditors are required to notify you 45 days ahead of significant change to your account including interest rate increases.
* The new rates only apply to charges made after the 45 days notice.
* You have a choice here you did not have before;
* You can Opt Out of the increase by closing the account.
* You will make the same payments, receive statements etc.
* But you also will not have access to the revolving credit you had before.
Creditors can raise rates:
* When an introductory period ends, unless you don't keep the terms of the agreement, make late payments etc.
* If the interest rate is a variable rate attached to some variable index.
* If you do not complete a workout plan you negotiated with your creditor.
* If you are more than 60 days late making a payment.
* The creditor must give the reason for the increase and must lower the rate back to the previous rate if the payments were made for 6 consecutive months.
* If you are discharged from the military active duty. Military accounts are capped at 6% for active duty service members.
So what happens if you decide to keep your revolving account?
The new interest rates are in affect for 6 months, at that point the account must be reviewed.
If you have made the correct payment, on time for 6 months and have not exceeded the credit limits the interest rates may be reduced.
The new law makes the creditors jump through a few hoops, but does not prevent you from huge interest payments. It does give the consumer some choices. Beware, if you are up against your credit limits and or are unemployed. Creditors are steadily reducing limits in an effort to reduce their exposure to risk. There could be worse things in store for people in financial trouble.
A good rule of thumb is to make every effort to keep your total unsecured debt under 30% of your established limits. That gives you some flexibility if you need it and prevents you from being perpetually buried in debt.
At Accelerated Debt Consolidation, we specialize in debt consolidation. Part of a professionally managed debt consolidation program is setting up your program to prevent interest rate surprises.
You really can payoff all your unsecured debt at much lower interest rates than creditor currently offer the general public and do it within the federal guidelines.
Hope that helps a little.
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Thursday, May 20, 2010
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