Individual bankruptcies are up 36 percent for the first half of this year, compared with last year. And that translates into more defaults on card balances. Bank of America, the largest bank in the country, reported its default rate jumped to 13.8 percent in June from 12.5 percent in May. Other issuers such as JPMorgan Chase, Citigroup, Capitol One, Discover and American Express have reported default rates around the 10 percent level.
According to Bill Hardekopf, CEO of LowCards.com, a free consumer resource Website on credit cards, you can expect card issuers to charge even more fees to make up for those losses. He predicts more card issuers will charge annual fees, up from the current 20 percent that do so today.
And he forecasts that many card issuers will solve the problem of advance notice of rate changes by simply making their cards "variable rate" cards, subject to an index such as the prime rate, plus a few percentage points. Then when interest rates go up, your card's interest rate will rise automatically.
Card issuers are also cutting back on reward programs, or making it more difficult to earn or redeem points. And some have started charging a fee of as much as 5 percent for transferring a balance. It will hardly be worthwhile to search for a lower rate card if you have to pay this much to move your outstanding balance.
Don't leave home WITH it
All of the consumer protections in the new law can't protect you against yourself! If you keep adding to your card balance, you're bound to be hit with higher costs -- one way or another.
I'm often asked what people should do when they get a notice of higher finance charges. The answer is simple -- but certainly not easy. As long as you carry a balance, you're at the mercy of your lender. Your only recourse is to pay down the balance! And the formula for doing that -- if you can manage it -- is also simple: Just double the current minimum monthly payment, and pay that amount every month, without charging another penny. Your card will be paid off in about two-and-a-half years -- and you'll save a fortune in interest.
Paying down credit balances is never easy, and it's even more difficult in the midst of a recession. But it's your only way out. And that's the Savage Truth.