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Credit Card Reform

by Don Current on March 3, 2010

Credit Cards

photo courtesy Gordon

Now that the “Credit Card Reform of 2010″ is fully in place, what do you think of it? Is it everything you’d hoped for? You’re probably finding out that it’s not everything it was supposed to be. Unfortunately, that’s usually the case when the government gets involved in things.

One of the provisions of the act is to prevent sudden spikes in your interest rate. Well, so far since the beginning of the year, the rate on “rewards cards” has increased from an average of 13.8% interest to 14.33% just to get a jump on the new law. In addition, many cards have gone from being fixed rate cards to be variable rate cards that adjust with the prime interest rate. That may not have too much effect right now, but as we begin to get past this recession, people will begin to see their rates go up.

We’re also beginning to see the alternative that credit card companies will implement now that they can’t jack your interest rate. Citicard has announced that they are now going to charge a $30 – $90 annual fee if you don’t spend at least $2400 per year on your card. “What’s in your wallet”? Were you just “saving your card for emergencies” as so many people claim?  Well now those “barbarians” of extra fees that Citicard used to have commercials about have invaded the Citigroup headquarters apparently.

So what’s your alternative? Well, there are no fees associated with having an emergency fund in your savings account! In fact, your bank (or better yet, credit union) will actually PAY YOU to keep your money there. So start working on that $1000 emergency fund. Then when you get out of debt, build it up to a 3-6 month of expenses emergency fund. Cash works better than a credit card for emergencies!

“Well what about buying things online, or over the phone” you say? Did you know that debit cards backed by Visa and Mastercard have all the same protections as credit cards? You are only held to the same liabilities as a regular credit card if someone gets your information which is usually $0 but may be up to $50. Paypal also has some great tools for buying online without exposing yourself to fraud.

So stop waiting on credit reform and get yourself some personal finance reform. YOU are the only one that you can truly reform. Get rid of that credit card, get yourself some cash in an emergency fund, and get out of debt.