Today's Consumers Should Pay Off High Credit Card Balances

Borrowers with high credit card balances are facing a perfect storm. The tightened credit market combined with the Credit Card Accountability Responsibility and Disclosure Act of 2009 may result in changes to their credit cardholder agreements that could cause them further hardship. Some of the provisions of the act took effect in May; the remaining provisions will take effect in February of next year. Consumer credit counselors urge borrowers with high balances on their credit cards to act now before they find themselves in deeper trouble.

Under the new law, credit card issuers can make several important changes to cardholder agreements, says Joel Greenberg, president and CEO of Novadebt, Garden State Consumer Credit Counseling, Inc. in Freehold, N.J. These include raising the minimum payment due to 5% of the outstanding balance, switching borrowers from a fixed to a variable interest rate, decreasing credit limits, and increasing fees for balance transfers. "People need to be aware of these changes and to be ready for them," Greenberg says. "If they don't take care of their outstanding debt now, they will be faced with higher monthly payments or find that less credit is available to them."

Tiff Worley, president of Auriton Solutions in Roseville, Minn., a consumer credit counseling agency, also says that while the act has some important consumer protections, those who carry large balances and make only minimum payments each month could find themselves pushed over the brink when the full changes are implemented.

Credit Card Holders Can Expect Notices from Issuers Outlining Changes

Over the next few months, credit card holders are likely to receive notices from the issuers in which they outline the changes they will be making to their account agreements. Some of the changes the card issuers are planning--such as raising minimum payments--may make it difficult for some consumers to make even the minimum payments. Greenberg says the best thing consumers who are afraid they may not be able to make the new, higher payments can do is to contact the issuers immediately and ask what options they have. If the consumer is able to pay down his debt more quickly and talks with the card issuer, he may be able to stave off the higher interest rates or more limited credit, Greenburg says. "Review your options with the credit card issuer and determine what actions need to happen to assure you can meet your obligations."

Delaying Credit Card Purchases and Lowering Balance May Help

Greenberg says consumers who are only paying the minimum also should stop using their credit cards and adding to their balances--at least until they know how they might be affected by the changes in the law. "Delay making any more purchases with your credit cards at least until you know if you will be affected by any changes in cardholder agreements," he says.

Worley agrees: "Pay down your debt as fast as you can and along with that, do not borrow any more than you absolutely have to."

Consumer Credit Counseling Can Help if Borrowers See Trouble Ahead

If consumers can't pay down their high credit card balances quickly, they should contact a consumer credit counseling agency, Greenberg and Worley agree. "Calling a consumer credit counseling agency to find out what programs they have to help you is not going to hurt anybody," Greenberg says. Also, it is better to seek help to avoid making late or partial payments, Greenberg says.

Consumer credit counseling agencies "are there to help consumers find the best alternative their financial situation," Worley adds. "When people get sideways, they need good advice."

At the same time, consumers need to beware of con artists and illegitimate businesses that prey on overburdened borrowers, especially in the current economic climate. Any deal that sounds too good to be true likely is. A consumer credit counseling agency should be a member of one of two national associations, the Association of Independent Consumer Credit Counseling Agencies (AICCCA) and/or the National Foundation for Credit Counseling (NFCC.) Membership in the associations assures that the agency and its counselors adhere to industry and ethical standards.

 

Sources:

Greenberg, Joel, Interview by Beth W. Orenstein, 17 Sept. 09

Worley, Tiff, Interview by Beth W. Orenstein, 17 Sept. 09

 

About the Author:
Beth W. Orenstein is a freelance writer working in Eastern Pennsylvania. She writes for newspapers, lifestyle magazines and trade journals. She specializes in real estate and medical topics. She graduated magna cum laude from Tufts University in Medford, MA., with a degree in English.