How to Combat Credit Reform Backlash

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New credit card rules have finally taken effect, curbing some of the most onerous practices, like jacking up rates on existing balances.

So it’s time to relax, right? Actually, it may be time to brace for the worst.

Card experts report that issuers are planning a string of new fees and rate increases to make up for revenue lost through the new rules. And who knows what else the card companies will devise? You can be sure of one thing — they have a lot of clever folks working on it.

Among the key changes that took effect Feb. 22:

  • Monthly statements show how long it will take for minimum payments to pay off balances.
  • Over-the-limit fees can be charged only if the customer has agreed to overdraft protection ahead of time.
  • Interest rate increases will only affect new purchases, not existing balances, unless the customer is more than 60 days late in payments.

That’s all good for consumers. But card issuers are still free to raise interest rates and penalty fees and to charge more for balance transfers or overseas transactions. Issuers are also expected to raise annual fees on cards with perks like airline miles or shopping discounts. You might pay more for the right to accumulate miles.

So, as always, the consumer will need some self-protection strategies.

Rewards are an especially hazardous area. These programs always sound terrific when you sign up. For, say, $60 a year, you might get a free flight or two. But if you are a light card user and take three or four years to earn a free flight, you’d be paying $180 to $240 in fees for the ticket. You might be able to buy an ordinary ticket for that, and not face the hassles, restrictions and blackout periods of a credit card miles program.

Obviously, the more you pay in annual fees the less likely the miles program will pay off. So watch carefully for fee hikes, and use the credit card search tool to find the best reward-card deals.

Minimizing other new fees or increases takes a strategy that’s easy to describe but harder to implement: keeping balances low and paying bills on time.

Your card statements will show how long it will take to pay off a balance if you pay only the minimum required each month. It could easily take eight years to pay off a $1,000 balance, and interest charges over that time could exceed the balance.

Use the Accelerated Debt Payoff and Credit Card Minimum Payment calculators to devise a debt-reduction strategy. Start by getting rid of balances on cards charging the highest rates.

Also, decline programs that allow you to exceed your credit limit, as fees can be enormous. Excessive charges can also be punished with a higher interest rate.

Finally, sign up for free e-mail or cell phone alert services that will tell you when your statement period and grace period end, so you’re sure to pay your bill on time. Many card issuers offer these services online and, for now at least, they aren’t charging for them.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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