WEALTH on WIRE

U.S. President Barak Obama has signed sweeping credit card reforms into law. The reforms are designed to protect cardholders from certain interest rate hikes, unfair fees, issuing, and billing practices, and generally require greater transparency and accountability from card issuers. While most consumer rights groups applaud the reforms as long overdue restrictions on deceptive and predatory practices, some serious points of concern were raised this week in the econo-blogosphere.

This legislation will significantly change the way credit card companies conduct business… consumers will see smaller credit lines, higher interest rates, higher membership fees, and fewer 0 percent offers.  Rewards offers will likely stay the same… While the effects of the legislation… may seem wholly negative, the long-term effects will result in a net benefit for consumers.

There’s a good reason for credit card companies to want lots of users who aren’t very profitable. Imagine a world in which 42 percent of households pay their bills and 58 percent miss the occasional payment. Now imagine that the credit card companies lose a bit of money on the 42 percent and make a lot of money on the 58 percent. They still need that 42 percent. The credit industry works best when everyone has a credit card. That only happens when most places take credit cards. And that requires not only huge volume, but also credit card penetration across different segments of society. Credit cards have to be the norm everywhere if everyone is going to have credit cards and that 58 percent is going to contain the maximum number of people.

Credit card debt is a plague and one should try to get out of it ASAP.  Unfortunately for most of them it is hard to pay off the credit card debts immediately.  Often one will not have the resources to pay of the loans.  The immediate focus has to be on getting out of debt, provided you have the emergency fund to last for 9 to 12 months. 

Emergency Fund: Having an emergency savings fund is even more important than being debt-free. “The sad reality is that the credit card industry is taking actions to protect themselves with no regard to your needs or how good you have been in paying your bills on time,” she said, referring to the fact that credit card companies have been lowering credit limits, increasing interest rates, and revoking credit cards altogether.  This means that many could find themselves without any access to credit following a job loss, when they need it most.  Imagine you are out of work and have no credit card,  you won’t be able to support yourself in this situation.   That is where emergency find becomes critical.   So top up your emergency fund before paying of the credit card in full.

First pay of the cards which is having more interest rate.  In this way, you can prevent paying high interest.