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Week of 10.16.09

The Credit Card Act of 2009: Five Ways It Will Affect You
By Manisha Thakor

Manisha Thakor
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Credit card debt is causing millions of Americans to fall into a vicious downward spiral draining money from their accounts when they need it most.

But thanks to the Credit Card Act of 2009 relief is on its way. New consumer protections will go in effect by the end of February (or possibly by December) and promises something for everyone. For example...

1. Are you under 21? The new law will help you save yourself from yourself by restricting your access to credit cards. Gone are the days of free tee-shirts and pizzas in exchange for signing up for a credit card on America's college campuses. Credit card companies will no longer be able to issue credit cards to individuals under the age of 21 unless they either can provide proof that they can repay the money they are borrowing on that card or have a parent (or someone else over age 21) co-sign and agree to be responsible for that debt. Right now the average college student is graduating with over $3,000 of credit card debt, so having this temptation removed can be a huge benefit as you begin your financial journey.

2. Are you trying to establish your credit history for the first time? Unless you have a card with a variable interest rate, card issuers can no longer raise your interest rate in the first year after a new account is opened. The only exceptions are if the card was opened with a clearly stated promotional rate for at least six months or if you go more than 60 days without making your minimum monthly payment.

3. Are you juggling existing cards? The new regulations put in all kinds of speed bumps you'll like. The interest rate on your existing debt can't be raised unless: it's a variable interest rate; you reach the end of a promo period; or you are over 60 days late on your minimum payment.

For future debt that you may accrue on fixed rate cards, issuers have to give you 45 days notice on any rate changes. Issuers can no longer charge over-the-limit fees unless you've specifically asked to have your account set up to allow transactions over your credit limit. Two-cycle billing is now banned. And if you are 60 days late on a payment, after 6 months of on time payments the card issuer has to restore your prior interest rate.

4. Are you digging yourself out of debt? The new law requires the fair application of payments. In the old days, it wasn't always clear to which layer of debt your payment was being applied. More often than not, the lowest interest was paid off first, preserving the high-interest debt as long as possible. Under the new rules, your highest-interest debt gets paid off first.

5. Are you a gift card pack rat? You can now shop till you drop. The new legislation applies to both prepaid cards as well as retailer cards in two main ways: (1) You can use your card for five years from time the card was purchased (or whenever money was last put on the gift card), so no more sudden expirations -- and (2) As long as you've used the card once in the past 12 months, no "inactive" fees can be charged. (After 12 months of inactivity, you can be hit with one fee per month).

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Note: The answers provided by Manisha Thakor represent solely her opinion and do not represent the opinion of NOW or its producers, who bear no responsibility for them. These answers do not necessarily reflect knowledge on Thakor's part of all factors relevant either to the circumstances of the questioner, or to circumstances experienced by others in their own situations. You therefore should consult with, and solely rely on, your own professional advisors before making any material financial or legal decision rather than on the answers provided here.
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