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New Credit Card Laws – New Details

It is no secret that the new credit card legislation will have a drastic effect on how banks and other financial institutions operate their business. The changes on your account can be likened as a double-edged sword. On one hand, certain changes can help you manage debt easier and attain debt management help. On the other hand, the new laws may also be confusing to consumers who are used to seeing the same charges on their bill every single month. To help you better manage your credit card charges; below are specific changes that had been implanted:

Interest Rate – in many banks, the annual percentage rate (APR) on existing balances will not increase if you pay late or exceed the credit limit. It will only increase if to the default rate if you fail to pay for the new transactions when it is due. It is also important to take note that consumers are encouraged to review their account periodically to determine if their APR should be lower than it is.

Grace Period – the grace period for repayment is more generous with the passing of the new credit card legislation. It can potentially help you reduce the amount of finance charges you need to pay. In addition, overlimit fee will no longer be charged. Be sure to check the terms of your card for further details.

Payments – the amount you pay in excess of the minimum payment due will now be applied to the highest APR balance first. This is a welcome change from previous practices because it helps you pay off high APR balances a lot sooner.

Payment Processing Time – another important change to the new bill has to do with the payment processing time. Mailed payments can now be processed on the same day as long as the banks receive it before their cut-off time.

Credit Card Legislation – Companies No Longer Allowed to Offer Perks

Free pizza, free coffee, and other goodies just by showing up? Why not. This is the reasoning on the minds of college students when they are approached by credit card marketers that promise these freebies for nothing. But there is a catch. When you arrive at the restaurant to booth to claim the free stuff, you’ll be asked to sign up for the credit card to get free food.

It is no wonder that the average college student has an outstanding debt of $4,100 in 2008 against the $2,900 figure back in 2004. Fortunately, measures are being undertaken to stop these tactics. Come February 22, 2010, college students will no longer be tempted by goodies offered by these credit card companies. This is the time when marketing restrictions on credit cards will take effect. It is expected that this will result to less debt for consumers below the age of 21.

Oftentimes, companies expect college students or those falling under the same age bracket to stay loyal to the first credit card they have. That’s the reason why they specifically target this segment with endless marketing ploys; sometimes going to the extent of getting this information from colleges itself for a fee. Students end up getting cards with high fees and high interest rates that can easily accumulate debt.

The amount of credit cards available to college students today has become worrisome. In fact, a significant number of younger consumers have four or more credit cards at their disposal. And only 17 percent of them said they always pay off debts in full every month.

Despite the less-than-stellar facts surrounding credit card usage, it has its good points. Some students use their cards to pay for necessities like textbooks. Another big change underway requires Americans under the age of 21 to get a co-signer if they cannot provide a proof of income. In essence, the co-signer (parent or older friend) is taking responsibility for the action of the college student.  Credit cards can also be beneficial for those under banked consumers who are continually charged huge debit card fees by their banks.

The New Reality About Consumer Spending Habits

Along with banks that are now undergoing increased scrutiny, credit-happy consumers are also finding themselves pushed against the wall as they begin to realize that they need to deal with life without credit. The US economic crisis has forced the credit card industry to rethink its strategy. Since the “revolving credit” concept was introduced in 1958 in the US, the business expanded to become a $1-trillion industry. Between 2005 and 2008, consumer spending using credit has bought the savings rate in the US to nearly zero.

But in May, this trend reversed. The savings rate rose to 6.9 percent, a 15-year high that was boosted in part, by the federal stimulus package. This is just one of the signs that the credit card industry is about to reverse. For the first time in its 40 year history, it is expected that revolving credit will decline.

Credit card companies are tightening credit standards because the default rate has doubled from 2006. Likewise, consumers are hesitant to take on additional debts when their economic future remains uncertain. In many places around the country, the value of real estate properties are still precautious and job security is becoming an increasing concern.

Changing the Consumer’s Spending Behavior

For many, their attitude towards debt has changed. During the housing boom, it seems practical for homeowners to borrow money using their home equity. The new marketplace dynamics changed all that. Even after the US comes out of the recession, spending habits will already be influenced by this dramatic experience.

Over the short term, the consumer’s motivation to save may effectively halt fast recovery because around 70 percent of the US economy relies on consumer spending. Over the long term though, a high savings rate will provide individuals with sufficient capital to invest in new ideas and innovations. It is predicted that this will create jobs and spur economic growth.

In the meantime, there is no escaping the fact that both the credit card companies and the consumers are struggling for balance. Banks are trying to figure out how to establish the credit worthiness of their clients because the FICO score seems less effective in today’s turbulent environment. On the other hand, consumers are adjusting to a “leaner” lifestyle where they need to cut back on almost everything to survive.

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