The New Regulations

The Feds have finally shortened the leash on credit card companies. New regulations that are designed to “protect the consumer” state that the big, bad credit card companies must:

1. Clearly disclose all APRs, and not hike interest rates unless expressly permitted.
2. Give us more time to make our payments.
3. Fairly allocate our payments so that higher interest charges are paid first.
4. Eliminate two-cycle billing where finance charges are carried over from previous months.
5. Limit fees that reduce the credit available to consumers.  

“These protections will allow consumers to access credit on terms that are fair and more easily understood,” Federal Reserve Chairman Ben Bernanke says.

Yes, we as consumers obviously need a better understanding of how credit works. Because from the state of things, it’s clear we have absolutely no idea. But these regulations aren’t really the answer to getting out from under the credit crisis. Because, let’s be honest, the credit card companies aren’t the only ones who deserve the blame. 

Not a Solution

To figure out how to get out of the hole we’re in, it helps to think back to how we got here. It wasn’t the tricky or unfair practices of the credit card companies. I think it was our repeated misuse of the credit in the first place.

You don’t have to be a rocket scientist to know that when a credit card company extends you credit, you are required to pay it back, plus interest. If you borrow more than you can pay back and the lender wants to legally profit from that mistake, you can’t really blame them. They are for-profit companies who make their money from a materialistic society addicted to instant gratification. Remember, credit is not a right, it’s a privilege. And it costs.

If anything, the new regulations will just make credit cards more appealing for consumers. And that’s exactly what we don’t need: more people using more credit.

A Credit Crackdown…for Consumers

I’m not saying the government should start passing laws to regulate consumer spending (because, really, does the government need to get any bigger?). But how about we start regulating ourselves for a change? Let’s take some personal responsibility and drag ourselves out of this mess.

And just like breaking an addition to drugs or food, weaning yourself off of credit is a lot of hard work.

Yes, unexpected expenses come up…medical emergencies, school tuition. It all has to be paid and often credit is the only option. But start living more responsibly today, so you can build up a reserve fund for emergencies tomorrow. I know, I know. The idea of being thrifty and paying down existing debts is hardly glamorous. But in time, thrifty habits are formed and saving gets easier. You start seeing more ways to save and less need to spend. It will actually feel good to start living within your means.

So when you’re ready to start “regulating yourself,” here’s the golden rule: Use your income to 1) cover basic expenses, 2) pay down existing debt, and 3) build up your savings. Turn to plastic only when you’ve cleared your credit card debt and know you can pay back what you charge within a month.