You may have been reading about record low interest rates on mortgages and thinking “Wow, credit is cheap right now!” You would be wrong, at least as to that ubiquitous source of lifestyle support: credit cards.
The credit card issuers had plenty of time to prepare themselves for the rule changes that went into effect this weekend. In the past, a lot of their money was made by exploiting the foolhardiness of card-holding consumers, e.g., late fees and instant rate increases.
The new rules constrain somewhat the ability of banks to punish the careless credit card users. So they have resorted to making money the old-fashioned way: increasing costs for all cardholders.
In particular, average interest rates on card balances have now surged upward to levels not seen since 2001. Source: Credit Cards Are Exception to Lower Consumer Rates
Consumers are fighting back, first by reducing the number of card accounts kept open. This number has dropped by 23%. That’s awesome. Only 391 million more accounts to go! (Source)
If you are smart and careful, you won’t care what your card interest rate is because you won’t carry a balance. The bank may retaliate against your “pay in full” good sense by imposing annual fees on your card. Do not let that happen. Take your business to a bank where your overall banking relationship gives you the leverage to insist on a no-fee card.
We have increased our use of debit cards for smaller, routine purchases (e.g., groceries, gas), thereby giving us an opportunity to earn 3% plus on our checking account balances. If your debit card is branded by Visa (as ours is), you can increase your fraud protection by allowing the purchase to be processed through Visa’s network. Some banks do that automatically. For others, you may have to select “credit” and sign when you make the purchase instead of entering your pin. Most retailers will give you this option.
When it comes to credit cards, be the punisher, not the punishee.
This is an article from Tough Money Love
Copyright 2011 Tough Money Love. All Rights Reserved
