The contention surrounding cash advances from payday lenders begins to pale when compared to the money-making tactics of credit card companies. In an effort to prevent cash-strapped borrowers from falling into credit card traps, President Obama is transforming the way that industry works.

A new law scheduled to go into effect next February will prevent credit card lenders from imposing astronomical interest rates when payments are made a day or two late. Additionally, credit card companies won’t be able to change interest rates at the drop of a hat. Instead, they’ll be required to give 45 days’ notice, and except in the case of defaults, altered credit card terms will apply only to new charges.

But lenders can dream up new fees

That doesn’t mean consumers should ignore the fine print or start paying for everything with plastic. In fact, the credit-card lending situation could get decidedly less favorable for cardholders who pay off their balances every month. According to Dennis Moroney, senior analyst for TowerGroup, a financial-industry research firm, credit card issuers are likely to invent new fees to make up for revenues lost under the new interest rate legislation.

Or reinstate old fees

“The pendulum may have swung in the wrong direction,” Moroney said in a recent SmartMoney interview. Among other things, Moroney expects a return of annual fees, which were common in the 1980s but have been almost unheard of in recent years. He also predicts that no-interest teaser rates will quickly become a thing of the past. “At best,” he says, consumers with excellent credit may receive introductory rates in the six-percent range.” If you currently carry a balance on a low-interest rate card, he advises, “be on your best behavior” to hang onto that rate.

Or cut rewards programs

Rewards programs are another area where credit card issuers are expected to make cuts. That’s bad news for cardholders inclined to run up debt in order to get freebies. On the other hand, the new interest rate legislation could have the opposite effect. Credit card companies will still need rewards programs to stand out from the competition. In fact, Ron Lieber in The New York Times predicts that card issuers may offer big spenders even more rewards to keep them spending.

Not new: The bottom line will always be money

One thing seems certain. Under the new legislation, credit card companies will be competing even more fiercely for the loyalties of their cardholders. So whether you carry high balances or pay your debt off every month, keep in mind that you don’t have to bend to your card issuer’s every whim. If you don’t like changes imposed by a lender, you can always threaten to take your business elsewhere. It’s all about the bottom line, and it may cost a card issuer less to appease you than it would to replace you.

You’re not blowing it all on clothes and payday loans are you?  With the trouble in the economy and the financial pressure that many are feeling today, American consumers are beginning to wise up.

USA Today quoted some interesting statistics based upon a survey asking consumers how they would spend an extra thousand dollars if given to them. The results were as follows,

• 31% would save it
• 24% would pay off debt
• 20% Would splurge!
• 16% Would spend it on necessary essentials

What would you have done with an extra thousand dollars this month?

It seems that most of the population is now making financially smart decisions. Paying debt, saving money, and spending it on essentials is what we should be doing. Especially now, and especially since the amount of average debt has grown exponentially, and more and more people are getting payday loans.

If you are among the 20% group who have, or would have chosen to splurge with that money, you should truthfully answer the following questions:

Are your debts paid?

Do you have a savings buffer?

Are your immediate needs provided for?

If the answer to any of the above questions is “NO”, then you have made the wrong decision. There is nothing wrong with splurging, but unless you can really afford to do so, all you are doing is enslaving yourself. The average American owes over $8000 in consumer credit card debt and that sum is rising, and so are the amount of people going to payday loans for financial help.

There are many bad habits that lead us into debt. I have outlined a few below. If you can personally identify with any of these, it would be wise for you to begin exercising a change in your financial habits in order to avoid any monetary pitfalls in the future.

What does “budget” mean to you?

Do you currently have a budget or plan of action for your monthly expenses and financial goals. If not, you need one! Some tend to think that a budget is just for those who are poor and need help making their expenses each month, but in reality we all should have a budget. Whether you make 20k, 100k or even more each year, a budget can help you to identify how much, and where your money is going. Without a budget, your ship may be afloat but you won’t be the captain.

Charging Purchases

It wasn’t that long ago that we all dealt in cash. The beautiful thing about cash was that if you didn’t have enough for what you wanted, you simply could not buy it, and that was the end of it. Today, we have too many options like Visa, Mastercard, and Discover. If we don’t have any plastic we can go draw some quick cash from a local brick and mortar, or online payday loans store.

All these luxuries that we have come to enjoy have their place and can be used responsibly to our own financial benefit. However, this is where discipline and responsibility are lacking with many consumers today.

If you use your card for all your monthly purchases, be sure that you do not go over the limit at which you can afford to payback at the end of the month. This may prove to be difficult and if so, get back into the habit of using and balancing a checkbook. With a checkbook your remaining balance is always before your eyes, and spending more than we can afford each month is more easily avoided.

Another alternative that I personally have found very useful from an accountability standpoint is putting a email notification on my credit card account. If your credit card provider provides this service to you via your online account control panel, you can get an automatic email notification when your balance reaches a set predetermined balance. Doing this will help you to avoid slipping further in the hole each month.

Paying off credit accounts

When paying off credit card debt, many try to pay off there lower balances first. This is usually a psychological game we play to make our progression to financial freedom feel faster.

If the interest rates on these lower balances are the highest of your credit accounts, you are following the right path as you always want to pursue your highest interest rates first as these will cost you the most over time.

Late Payments

One of the worst habits that will lead you into debt quickly is procrastination, being habitually late on your payments will not only add hefty late fees and charges to your already existing balance, but it will also raise the interest rates on your account. If the existing balance in the account is quite large, this could cost you hundreds of dollars in interest fees over the time it takes you to pay off the balance.

Minimum Payments

If you only pay the minimum payments on your account, then it would be safe to assume that you may never get out of debt. Minimum payments may make you feel like you are saving money because you have more in your pocket after paying your bills, but the amount you will pay in the long run for minimum payments will have you paying the maximum amount possible.

This can be demonstrated by the following scenario,

Let’s say you have a credit card with a $1000 balance on it. The APR is 18% and your monthly minimum payment is calculated at 2.5% of your current account balance.

If you chose to only pay the minimum payment of $25 each month until your account was paid in full, it would take you 153 months or just under thirteen years.

On the other hand, if you set your sights on paying off the debt by paying $100 each month or $75 dollars above the beginning minimum payment, it would only take you eleven months to pay your balance off .

Paying as much towards the principal of your balance each month as possible is key to getting your revolving credit balances payed off. If you would like to see how long it will take you to pay off your debts at set set monthly or minimum payment, you can use the calculator at Bankrate.com.

By taking steps to identify and correct these habits now you will save tens of thousands of dollars over the course of your lifetime, and less chances where you find yourself in need of payday loans. Take the step and you will be glad that you did.

Credit Card Companies Can Raise Your Interest Rate Without Notice

I have always been responsible with regards to balancing my finances, avoiding a payday loan unless absolutely necessary. As a daughter of a financial planner, I learned the importance of paying my bills on time and developing a good credit score.

What about emergencies?

I have also learned that unexpected bills do happen to the best of us. I have always kept an emergency credit card on hand to cover unexpected bills. My credit card company has always provided me with a reasonable interest rate that allows me to pay off the balance within a reasonable amount of time.

Are you aware of what the credit card companies do?

That all recently changed. I had an unexpected medical bill creep up on me, and I noticed that my Visa balance was not going down as expected. I called the credit card company and asked what my interest rate was, since it was historically at 7.9%. The representative told me that they raised it to 23%. I was shocked since I had never been late on a payment, and I have a good credit score. The representative told me that they “re-evaluated” my account and raised the rate. I continued to ask questions. The representative told me to read my contract, as it states that they have the unfettered discretion to raise my interest rate at anytime. I asked if I could negotiate a lower interest rate, and she refused.

Who is Really in Control of my Finances?

It was at this point that I realized that the credit card company was now in control of my finances. To think that we as taxpayers recently bailed out the banks in their time of need, and yet they in turn do not give us any slack in our time of need. (Yes, the credit card is through one of the major banks that was provided with bail-out money).

I’m Taking Charge!

Since I want to be in charge of my finances, I now use payday loans to cover an unexpected bill instead of a credit card. With a payday loan, the fees are in writing, and not subject to change at the lender’s discretion. Since I am typically able to pay off my emergency bills in under 60 days, a payday loan has turned out to be my new emergency money solution.

A Payday Loan Can Save You Money.

My challenge to you as a consumer would be to consider a payday loan in lieu of a 23% interest Visa card, or using your overdraft protection with your bank. I utilized my overdraft protection insurance only on one occasion. I purchased lunch the day before payday, and I used $2.33 of my overdraft protection. My bank charged me $25.00 for this service. $25.00 to borrow $2.33 was certainly the worst financial decision that I have ever made, and I do not intend to use that “service” again.

I encourage you to analyze your own financial situation and to consider the option of a payday loan if you have an unexpected bill arrive in your mailbox. Please keep in mind that payday loans should be used only for temporary financial needs, and not as a long-term financial solution.