The new CARD consumer credit protection act takes effect next week—and not a moment too soon.

We’re still in a feeding frenzy of credit car companies raising interest rates through the stratosphere while they still can.

Now, hopefully, those ridiculous rates will slow down. I recently heard of one that was 250%! Most us have experienced rates of 36% or even 44% despite good credit scores and pristine payment histories.

One of my companies recently reduced my credit limit from $9,500 to $500 just because I hadn’t used the card for a few months. I decided to vote with my feet since they had initiated a hit to my credit score, I’d just bite the bullet and say goodbye to them.

The new CARD act doesn’t mean that your credit card company can’t still put the screws to you, but there are some limits.

Here’s what you get starting next week:

• Banks must give 45 days notice before raising the interest rate on future purchases.

• Your interest rate on existing balances can’t be raised until you’re in default for 60 days.

• Your monthly statements going forward will reflect how many years you’ll be in debt if you only make minimum payments.

• Any annual fees must be capped at 25 percent of your card’s limit.

• If you have multiple interest rates on your account, anything you pay over the minimum balance will be applied to the highest rate first. But beware, if you only pay the minimum, the money will still be applied to the lowest balance first.

• Teaser rates on new cards must be honored for one year.

* Credit won’t be extended to people under 21 without a co-signer, except in very specific circumstances.

• Two-cycle billing will no longer be allowed. This was a sneaky way that banks would charge massive interest if one month you paid in full and the next month you didn’t.

But you got one of those “drop dead” letters from your credit card company. Yikes!

My condolences. It’s gonna hurt, no matter how you cut it.

There are four basic types of love letters credit card companies are sending out these days:

1. Raising interest rates: Your interest rate is going through the stratosphere. Since there is no legal ceiling on credit card interest rates in many states, it could be anything. The highest I’ve heard is 40%. Rates of 19 to 25% have become common.

Many credit card companies are allowing customers to “opt-out,” which means they can keep their old interest rate if they agree to have their accounts closed when the balance is paid and that no new charges will be permitted.

2. Reducing credit limits: Your credit limit is being reduced. That may not seem like a big deal if you’re nowhere near your limit, but it could have a huge negative impact on your credit score. That. In turn will stick it to you big time if you wan to finance a house or a car.

That’s because your credit score is based on the total amount of credit you have form all your credit cards divided by the amount you are using. Let’s say, for the sake of argument, that you have $20,000 in available credit and you’re carrying about $5,000 in credit card debt.

So one or two of your credit card companies get nervous and decides to reduce your available credit to $10,000. That doesn’t seem like a big deal. You’re still only using half of your available credit.

Ah, but here’s the rub. Where you once were using only one-quarter of your available credit, now you’re using half of it. That will ding you to the tune of as much as 100 points on your credit score, even though you did nothing and you didn’t charge so much as an additional dollar.

If you’ve been the recipient of one of the interest rate increases I described in #1, you’ll get a double whammy when you’re a good little consumer and pay off your balance and your account is closed.

3. Raising minimum payments: You’ve got one of those fixed rates and you think you’re sitting pretty because you know your interest rates can ‘t be raised. That’s true so here’ where the credit card companies are doing their “gotcha:” they raise your minimum payment. You scramble through your files to find your agreement, written in “mice type,” as my hero, consumer guru Clark Howard, likes to call it. After spending hours with a magnifying glass, you discover they can raise your minimum payments whenever they like. Now your minimum payment has been increased from 2% of your balance to 5% or more. Ouch!

4. Non usage: You didn’t use that card, so now they’re taking it away from you and closing your account. To prevent this type of punitive account closure, use your cards at least twice a year, even if it’s just to buy a cup of coffee or a tank of gas. Pay it off at the end of the month and feel reasonably assured that your account won’t be closed, dinging your credit as mentioned in #2.

Why are credit card companies doing this?

The answer is simple: New consumer credit protection laws are taking effect over the next few months and the credit card companies are in a feeding frenzy to bring in as much money as they can right now. New consumer credit protection laws are phasing in, and in the coming months, credit card companies will not longer be able to raise interest rates on existing purchases or charge late payment fees.

Credit card companies are also terrified that more and more people will default on their debts, as is already happening. On the first quarter of 2009, Reuters reports, credit card debt increased 16.4%.

It is clear that many Americans are living on their credit cards. With rising unemployment, it is inevitable that the default rates will continue to climb. Bank of America has reported a 14.54 percent charge off rate—accounts the company does not expect to be paid—in August up from 13.81 percent the month before.

In a Big Brother-ish development, CNN recently reported that credit card companies are tracking spending habits. If you were a Sak’s Fifth Avenue customer and you recently started shopping at Wal-Mart, you could be penalized because the company fears you may be in financial trouble. You could be in an even bigger penalty phase if you start using your credit card at bars.

What doesn’t make sense is that the credit card companies are precipitating more defaults by raising their rates or minimum payments to unaffordable levels, for all practical purposes guaranteeing more defaults.

What should a consumer do?

I wish I could give you some easy answers, but there aren’t many

If necessary, accept the interest rate increase and the closure of your account. If you can, immediately apply for another credit card so your available credit doesn’t take a hit when the account closes.

While it’s important to your credit score to have a high amount of available credit, that doesn’t mean you have to use it. In fact, don’t use it!

Use your credit cards

This may seem paradoxical with what I just wrote, but you have to use your credit cards or you may lose them.

Keep track of your cards and be sure that you use each one just twice a year Fill up your tank with gas or buy yourself a modest lunch. Pay off the bill at the end of the month. Many companies are now closing inactive accounts. If this happens to you, it can effect your credit score.

What’s next?

The CARD Act protecting credit card customers is scheduled to take effect in February of 2010. However, there is now talk that the effective date may be pushed up to December 1, 2009 because legislators are so angry about the credit card companies’ draconian activities in the runup to the new restrictions.

Among the protections of the CARD Act are prohibitions of permanent interest rate increases for late payments, restrictions on increasing interest rates on existing balances and prohibiting the issuance of credit cards to anyone under 21 without a parent as co-signer.

I’ll be keeping you up to date on this in the coming weeks.

–Kathleen Barnes http://www.kathleenbarnes.com

This is happening everywhere, to people with stellar credit ratings and to those who have been a little shaky. Who isn’t a little shaky in these trying times?

It’s obvious that the banks are worried that people will default on their credit cards, so to prevent that, they are raising the interest rates to the roof. This is exactly the kind of wrong-headedness and moronic thought processes that got the banks into the sub-prime mortgage crisis and which will precipitate the next crisis of massive credit card defaults.

Imagine you have a credit card with a $10,000 balance at 8.99%. You’re paying $100 a month and making slow headway. The bankrate.com calculator says you’ll crawl out from under that debt in seven years.

Now imagine your most wonderful, most loving and understanding credit card company suddenly raises your rates to the stratosphere. You may or may not be given an “opt-in” offer to have your credit shut down, freeze your current interest rate and have your account closed when the balance is paid.

At 29% interest, you’ll never pay off your debt at the rate of $100 a month because your payments will not even cover the interest. In order to make any headway, your payments will be raised to at least $250 a month. At that rate, it will take you nearly 12 years to erase the debt.

For argument’s sake, let’s continue with the imaginary scenario that you have just been given notice that you are being laid off.

Your top priorities are (and should be) to keep your car, so you can travel to a new job, and your home. Other priorities are obviously food, utilities and medical insurance. Where do those already unaffordable $250 a month credit card payments fall? You’re right: At the bottom of the list.

Your thinking process goes something like this: You need a car to get a new job and that has to the the most important thing in your life. If you default on your credit card, your credit will be in the toilet for seven years, but you’ll still have the necessities of life: car, house, food, etc.

What choice do you think you (and most people) will make? You’ll grit your teeth, default on your credit cards and let your credit rating suffer.

It’s not pretty, but these hard economic choices are being made every day all over the country.

What does this mean for the credit card companies and the big banks that own them?

It doesn’t take an MBA from Wharton to figure out that the $25 trillion we collectively owe in credit card debt is going to drag down the fearful and greedy banks that are forcing so many to make the difficult decision to default.

And it doesn’t take a crystal ball to see the banks once again crying for a government bailout.

And should we give to them?

NO WAY!

The banks are precipitating this situation. They started 15 years ago when they started shoving credit cards at us and encouraging us to spend more and more and more. Now they are bringing this festering boil to a head by raising interest rates to impossible levels.

What should you do if you’ve gotten one of these letters? Accept the opt-in, which will freeze your rates at their current level. Keep your payments current and take the minor hit you’ll have on your credit rating when the account is closed when you have a zero balance. (By the way, you can’t make any new charges on the card if you accept the opt-in.)

What should the government do to stop the next bank crisis before it hits? Congress should immediately pass legislation regulating credit card interest rates for all banks receiving federal bailout money. Retroactive rate increases for customers who are current on their accounts should be prohibited. Higher interest rates on new purchases should be regulated at reasonable levels, say at 15% or less.

Contact your senator and representative today and tell them the banks have to reined in again before they cause a second crisis which could be the killing blow to our economy.

This is usury, pure and simple. Worse yet, these panicked interest rate hikes are certain to become a self-fulfilling prophecy which will ensure more bank failures.

Now, I don’t know about you, but I’m most definitely not in the loan business, and I’m especially not interested in loaning money to the government.

Yes, I know that many people use their tax refunds as some sort of enforced savings account, but there are far better ways you can do that which will actually earn you interest.

Here’s how you can do better than giving your money to Uncle Sam:

Say you’re getting a $1,000 refund. That’s free money, right? No! It ‘s your money and it has been in the hands of the government, not your hands for months now.

That’s $19.23 a week that could have been working for you.

If you’re getting a refund, I strongly advise you to visit your human resources rdepartment and ask for your withholding to be adjusted to reflect that amount.

With your $1,000 overpayment, that means you’d reduce your withholding by $19.23 a week, if you’re paid weekly. If you’re paid every two weeks, reduce your withholding by $38.46 per pay period and if you’re paid twice a month, reduce it by $41.67 a month.

But, you say, you don’t trust yourself to actually save that extra money in your paycheck. Don’t use Uncle Sam as a savings bank that pays no interest.

Instead set up an automatic deduction that puts that amount straight from your payroll deposit into a savings account or a brokerage account for a Roth IRA. I’ll be writing more about Roth IRAs next week, but, in a nutshell, these are excellent ways to save money and to see your money grow tax-free over the years and serving you well when you retire.

Right now, online banks are paying just under 2% on savings accounts, although that figure has been much higher in the past and will be again.

If that seems paltry, consider this: That $1,000 a year you’ve been loaning the government could turn into more than $41,000 if you’ve got 30 years until retirement at just 2% interest. I know you can do even better than that.

So, this April 15, celebrate the fact that you’ve given Uncle Sam exactly what he’s due and not a penny more!

According to the Federal Trade Commission, more than 10 million of us are victims of identity theft every year and the number is rising.

Criminals get your personal information in a variety of ways, including:

Dumpster Diving. They rummage through trash looking for bills or other paper with your personal information on it.
Skimming. They steal credit/debit card numbers by using a special storage device when processing your card.
Phishing. They pretend to be financial institutions or companies and send spam or pop-up messages to get you to reveal your personal information.
Changing Your Address. They divert your billing statements to another location by completing a change of address form.
Old-Fashioned Stealing. They steal wallets and purses; mail, including bank and credit card statements; pre-approved credit offers; and new checks or tax information. They steal personnel records, or bribe employees who have access.
Pretexting. They use false pretenses to obtain your personal information from financial institutions, telephone companies, and other sources.

Once the criminal has your information, they can do a number of things, but the most common is to open credit account in your name, sent to a different address. The trick is that you don’t even know those accounts exist until a collection agency tracks you down for non-payment.

How can you stop this? Those credit monitoring agencies will nickel and dime you to death, without any real results.

But here’s an easy way: Put a freeze on your credit.

Here’s how: You contact each of the three credit reporting agencies and fill out online forms that place a freeze on your. That means that no new accounts can be opened unless the applicant “thaws” the credit by providing a secret PIN number to the credit reporting agencies.

Thawing is simple. It only takes a few minutes and then you can apply for credit, for example, if you decide to buy a car with financing or open a new credit account or apply for a mortgage. Once you’ve completed the transaction, you can freeze your credit again.

My consumer hero Clark Howard offers step-by-step instructions for freezing your credit on his website.

It’s a little bit of a hassle and it’ll cost you about $30, but it’s so worth protecting yourself against the grief of identity theft and thousands of dollars potentially lost, the amount of time it will take to correct your problem and the damage to your reputation it can even though you are not at fault.

As long as your credit remains frozen, you can rest easy that no one can possibly steal your identity.

–Kathleen Barnes

http://www.kathleenbarnes.com

[Note: Tough times call for us all to get stronger. Today I'm starting to talk about economic survival on this blog and on my website. Everyone I know, myself included, is being affected by this economic downslide. I'm offering some thoughts about how to survive and thrive in these tough times. I invite your comments and ideas. --Kathleen]

Sure, you love your kids. I love my kids, too. Sure, you want the best in life for them. We all do. Sure, you want them to have a good education that will give them an opportunity for financial security.

Maybe you’ve even funded 529 plans for them that will give them a big boost
When it comes time to cough up those tens of thousands of dollars it will cost to get a college education.

So it may sound selfish when I tell you not to use your retirement money (this includes home equity) to pay for your kids’ college educations.

Here is the simple and practical reason why: A college education can be funded by loans. There are no loans to cover your retirement.

Yes, it’s tough to graduate from college with a debt burden. But let’s hope your kid has learned something in college and is smart enough to parley that knowledge into a decent income. He’s got his whole working life to pay back the loan. She can be creative and take a public service job that will help write off the loan the longer she stays in the job.

You, on the other hand, have worked your lifetime for your 401(k) and your home. If you’re like most of us, the vagaries of poor economic policy that had nothing to do with you have now robbed you of a large percentage of the value of your portfolio and trashed the value of your home.

I don’t want to sound like Gloom and Doom Panic Monger Suze Orman here, but it’s going to be really hard to regain that lost value unless you have 30 years or so until you plan to retire.

Our leaders simply don’t have experience with this, but the experts tell us that it took the average person 25 years to recover from losses during the Great Depression.

A little personal info: I’m 60 years old. I’d planned to retiree at 70. My husband is 67 and he planned to retire in three years. Now, for both of us, those goals are so far out of sight they’re over the horizon.

Of course, none of us know how long we’ll live. That means we don’t know how many years of retirement we’ll have to fund.

My father, at 86, lives in true terror that he will outlive his money, which has literally been decimated by market downturns in 2001 and this past crisis. We’re not in much of a position to help.

I’ll be talking about this much more as we explore ways to survive in this bleak economic environment, but for now, take this home:

Tell your kids now they’ll be on their own to find financing for their college educations.

Fund your retirement, not your kids’ college educations.

—Kathleen Barnes
http://www.kathleenbarnes.com