The Savage Truth on Money by Terry Savage

If you've been living in a house of cards, read carefully. Just three weeks from now — on Feb. 22 — the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 goes into effect. Beware. Along with some new protections, the rules allow for more subtle and costly traps for unwary cardholders.

Americans have nearly $900 billion charged on their credit cards. More than half of those cardholders are paying only the minimum monthly payment. If you're one of them, you've likely been hit with higher interest rates and lower credit limits in the last few months, in advance of the tougher restrictions.

The CARD Act requires that the card company mail your bill 21 days before it is due, up from the current 14-day requirement. And it requires those under age 21 to have an adult co-signer who will take responsibility for unpaid balances.

You'll see one of the new benefits when you open your bill. Now the card issuer will be required to show you, in graphic format, the difference between making only the minimum monthly payment vs. paying more than the minimum each month — a dramatic reminder of the costs of carrying a balance.

The new law does not cap interest rates, but it does limit the ability of the card issuer to raise your rates. The new rules say they can't hike your rate on existing balances unless you're 60 days late with your payment. But they can raise rates on future purchases at any time, and without giving a reason, although they must give you a 45-day warning.

Card issuers have plenty of other ways to make money off you if you're hooked on credit. That's why it's so important to read the fine print on any notice the card issuer sends you. Those costly changes may come in a separate mailing, which you might toss away as a pitch for a new card, or as a "statement stuffer" — little sheets of paper in your bill that you routinely throw away when you open it.

Here's one trick that card issuers are using to get around the rules: The prohibition against raising rates applies only to fixed-rate cards. That's why many card issuers are now sending notices announcing that your card is now a variable-rate card — with a rate tied to the prime rate, plus 7 or 8 percentage points.

Currently, the prime rate is a low 3.25 percent. But watch out if rates start to rise again.

There are other ways the card issuers can trap you. For instance, there's no law against creating new penalties and fees on existing cards. That's why so many issuers have started to charge an annual fee. Some even charge an extra fee to receive a paper statement. Or a fee if your card remains inactive.

And here's the real kicker. There are no restrictions to prevent the card issuer from lowering your credit limit. That impacts your credit report because it looks like you're maxed out! And it makes it easier to inadvertently go over your credit limit, triggering a penalty! Be sure to "opt-out," telling the card issuer to deny a transaction if it would trigger an over-limit fee.

There's really only one way to avoid all of these traps: Pay down your credit-card balance faster, using this strategy:

If you take the current minimum monthly payment, double it, and keep paying that same amount every month without charging another penny, your card will be paid off in less than three years.

That formula applies no matter how large your balance, or how high the interest rate. In fact, now you'll see the benefits of that strategy explained on your credit card bill, which must show you the amount you must pay monthly to eliminate your balance in three years.

In these days of financial hardship, it may be impossible for many people to make larger payments. But short of winning the lottery, it's the fastest way out of credit card debt.

Don't fall for those debt-settlement companies. Most require you to divert your current payments to an account giving them the leverage to negotiate. Meanwhile, your credit is further ruined — and they take their fees before negotiating any settlement.

If you're really over your head in credit card debt, call Consumer Credit Counseling Services at (800) 388-2227. That will connect you to the nearest local office, where you can receive reliable advice either in person or over the telephone.

You can pay down your debt, but it takes discipline and income to do it. And that's The Savage Truth!

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.

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