If you’re drowning in credit card debt, you’re not alone. The average family has $8,500 in credit card debt. New laws just went into effect that are designed to help reduce the fees and interest related to your debts, and to protect your credit rating. Here are the facts, courtesy of Beth Kobliner, author of Get a Financial Life.
- First, credit card companies can no longer raise interest rates on debt you’ve already racked up, unless your payment is more than 60 days late. So, make sure you always pay on time.
- They can’t raise your interest rates if you’ve been late on other credit cards or loans. This means, missing a payment on one bill won’t automatically raise your rates across the board, but it will hurt your credit score. That can eventually lead to higher interest rates – making it tougher for you to get credit and loans.
- The new laws also prevent credit card companies from charging fees every time you go over your credit limit.
- Credit card companies are also now required to tell you – on your bill – how long it’ll take to pay off your balance if you pay only the minimum each month, and how much interest you’ll be charged. For example, if you owe $5,000 at 16%, you’ll pay nearly $10,000 in interest, and it’ll take you nearly 18 years to pay it off. Add just $20 a month to the minimums, and you’ll be debt-free in 8 years and pay less than half as much interest.
- The news laws also prevent people under 21 from getting a credit card, unless they show proof of income, or get an adult to co-sign and guarantee the payments. Say ‘no’ to co-signing, because any mistakes your teen makes on their card can mess up your credit score for years. Bottom line: If your child wants spending power, maybe it’s time they got a job.