They're Back!

“When CNBC asked him what the one thing he believed young people should be doing about money, his primary advice was to "stay away from credit cards." Paying interest on credit cards not only suggests that you are living beyond your means, but it also means that you are losing money. Both courses of action run contrary to Buffett's philosophy.”

After spending a long holiday weekend with economists in Cloud Cuckoo Land, let me return to Earth, the planet where most of us live. The new consumer protection act outlawing many egregious practices by credit card companies will not go into effect for another month and already they have discovered loopholes in the law that will allow them to exploit Americans who are too poor or too ignorant to find options.

If you are lucky enough to have a fixed interest rate credit card, the banks can no longer raise the interest rate on your existing balance, if you continue to pay your bills on time. However, most Americans have variable interest rate credit cards. Now things start to get a little murky. The rate floats as a function of the Prime Interest Rate or some other such index. As interest rates rise, the rate you pay on your existing balance will also rise. Banks have now added interest “floor rates” into the contractual fine print. Even if the interest rate drops to zero, the credit card company does not have to drop your rate below their set point. In the past the rate was calculated on the basis of the highest index rate in the 30 day billing cycle. Now the banks will use the highest prime rate in the last 90 days as a basis. Experts expect this one little change will cost you $720,000,000 a year. Heads they win. Tails you lose.

The credit card companies have added minimum finance charges to many of your cards. Now if you owe less interest than the minimum, you pay the minimum.

The credit card companies will now be charging late fees that increase with your balance. While the banks advertise the lowest rates, 9 out of 10 of their customers pay the highest fee and that fee is increasing.

The days of having 15 credit cards in your wallet are coming to an end. Card companies are adding inactivity fees. You pay not to use a card, even if you have a pay off agreement with the card company that does not allow you to make new charges to the card. Isn’t that special. The banks are telling us not to cancel credit cards, even if we don’t use them as this would effect our credit rating. There is less to worry about if you don’t exceed 30% of available credit and you pay off that balance off every month.

In the past credit cards charged a foreign transaction fee when a cardholder made a purchase requiring a currency exchange. Now the definition of a foreign transaction fee includes any transaction that touches a foreign bank even if no currency exchange takes place. The typical foreign transaction fee has increased from 2% to 3% over the last five years. I don’t expect this number to go down.

Credit card companies are also changing the rules on balance transfers from one card to a new card and cash advances. The banks are adding minimum charges and have removed fee caps from these transactions. The typical fee is something around 4% with a $20.00 minimum. If you receive a hundred dollar cash advance you will not pay $4.00. You will pay $20.00. One of my good friends has very skillfully played a successful game by shifting her balances to new cards with six month 0% interest rates. It looks like these new changes will stop some of this kind of activity.

Do I sound angry? Yes I am angry. I am angry at the companies that exploit us and I am angry that so many of us don’t do anything to stop this nonsense. Excessive credit, bad debt, is what got us into this mess. Even though American consumer debt is dropping for the first time in my lifetime, it is still at ridiculously high, unsustainable levels.

Please, DON’T BUY THINGS YOU DON’T NEED WITH MONEY YOU DON’T HAVE! Please, don’t give any more money to these scoundrels who have wrecked our economy and hurt so many innocent, naive Americans.

Most of this information came from an article from creditcards.com written by Tamara Holmes