New Credit Card Law Kicks In

Yesterday, August 20 2009, a section of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 came into effect. The law has two main changes:

More Advance Notice of Rate Hikes:

• Card holders will receive a 45-day notice before key contract changes take effect. The contract changes include interest rates, fees, or finance charges increases.

• The provision does not apply to credit card limit changes, closure or interest rate caps. This means that, if the credit card cuts a customer's credit limit, the consumer could still be charged a penalty.
  

More Time to Pay:

• Credit card companies must send statements to consumers 21 days before a payment is due. The previous laws require only a 14-day notice.

What all this means to you:

• You now have enough time to pay your credit card bills before they are due.

• Your credit score could be negatively affected if your credit limit is reduced. According to Fair Issac- the creator of the FICO score, credit utilization accounts for 30% of your credit score. Credit utilization is the ratio of current revolving debt to the total available revolving credit. Therefore, the closing of existing revolving accounts will affect this ratio and therefore have a negative impact on FICO scores.

The other sections of the law come into effect on February 22, 2010 and August 22, 2010.

The February 22, 2010 law will deal with:

• Retroactive rate increases
• Fee restrictions
• Restriction of cards to students
• Ending of double cycling billing
• Fairer payment allocation

while the August 22, 2010 law will deal with:

• Gift card protection
• Retroactive rate increases

Because most fo the provisions of the law do not take effect until next year, credit card companies are already tweaking their business model trying to look for new avenues to offset the future loss of income. For instance, according to an article I read on the Wall Street Journal (http://http//online.wsj.com/article/SB10001424052970204044204574360934028530334.html), Citigroup is instituting annual fees on some credit card accounts in an attempt to offset the new legislation that could dent its profit. My view is that other credit card companies are probably going to do the same too if this move by Citigroup becomes successful. Very soon, new fees are going to quietly crop up.

The best way to avoid getting burned is to make sure you use your credit card judiciously (if you have to) and pay off your balances each month. That way you don't get charged with fees and saddled with debt.

A goal without a plan is useless

I volunteer as a career coach in an organization within my community. The role involves following up with people, providing encouragement and acting as a resource to help them accomplish their financial goals. My observation has been that a majority of folks, after setting up their financial goal, do not set up plans or action sets needed to accomplish that goal. It's like they get so fired up and excited at the initial stage of setting up the goal but fail to follow through with action steps and plans. A goal without a plan is just a waste of your time and resources.

In order to make sure that you achieve your goals, the following steps are helpful:

• Set the goal. Make sure the goal is specific and easily measurable so that it's easy to know when the goal as been accomplished. For instance, it's better to set up a goal to "create an emergency fund of $1,000" rather than a goal that states "create an emergency fund with enough money".

• Set up a realistic time period for accomplishing the goal.

• Break the goal into mini goals and create action plans and steps needed to accomplish these goals.

• Set up a period either weekly, bi-weekly, monthly,quarterly, etc during which your goals, action plans and steps are reviewed and also your progress to date is evaluated. Make adequate changes where required. It's possible that as you progress, things change and you know become aware of situations and factors which you did not think of earlier.
  

Hopefully, by following the steps highlighted above, your goal will now become clearer and you'll get a sense of accomplishment as you move closer towards knocking that goal out of the park!

Your comments about this article are appreciated.