New regulations went into effect on February 22, 2010, that are designed to protect consumers. Overall, this is a very important and good development. But listen to me and listen good: You can still end up in plenty of high-cost trouble if you don't stay one step ahead of the bank credit card issuers.
Here are some key issues to keep an eye on:
What's new: If you pay your bills on time, the interest rate on your existing balance cannot be raised.
Pay attention: Notice I said "existing balance." If you, in fact, miss a payment, the interest rate on new, unpaid balances that occur after the misstep can indeed be raised.
What's new: The rate on a new card can't be raised for the first 12 months. But after that, it is fair game for the issuer to raise it as long as you are given 45 days notice. (The higher rate would not apply to existing balances, only new, unpaid balances.)
Pay attention: If you are ever 60 days late with a payment, the credit card issuer can raise your rate regardless of how new a client you are. That said, if you then make on-time payments for six months, you will be eligible to have your lower rate reinstated.
What's new: Your monthly statement will now include an estimate of how long it will take you to pay off the balance if you opt to make only the minimum payment due and the amount of interest you will owe over that stretch. It will also show you an estimate of how much you would have to pay each month to get the balance paid off in three years.
Pay attention: Anyone with an unpaid balance should tape this to their mirror and stare at the numbers at least once a day. This is not punishment; it is motivation. Many of you with balances of $10,000 that charge 15 percent, 18 percent or more will see it can take decades to pay off the balance if you only pay the minimum, and your total cost can be nearly triple your current balance.
What's new: Your payments will now be used to pay off your highest-rate debt first. In the past, the credit card companies liked to apply your monthly payments to the lowest-rate debt and let your most costly unpaid balances keep mushrooming. Congress, thankfully, has put the kibosh on that ridiculous treatment.
Pay attention: While this sounds like a great change, the reality is that if you have high-rate balances you are in bad shape, period. My advice is that if you are paying more than 18 percent on any debt, check out whether you can qualify for a balance transfer to a card issued by a credit union. By law, credit unions cannot charge more than 18 percent interest, and in fact many charge less. Bank credit cards have interest rates of 30 percent or more. Go to CreditCardConnection.org to search for good credit unions cards near you.