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Yes, Fiscal Cliff Could Change Your Credit Card


Fiscal Cliff and Your Credit Card

Amidst all of the grumbling about the president’s decision to enjoy a vacation in Hawaii as the country edges closer and closer to the fiscal cliff, there are some hard realities that many Americans had put aside for the short term. Now, though, with hopes and any faith in the elected leaders in this country begin to fade, many are finally making their peace with the inability of those same leaders, in all of their educated minds, to find a solution. Making peace with that reality is hitting close to home, too. First, though, with the holidays keeping us busy, we thought we’d check in to see what the latest news out of Washington amounts to.

Spinning Wheels

In short, nothing’s changed. Both Congressional Republicans and President Barack Obama are poles apart. Even as Americans are thinking to themselves, “No one is really surprised”, they’re also coming to terms with the growing probability of higher taxes, deep cuts and household financial changes that have the potential to make the recession look like child’s play. Meanwhile, Obama justified his decision to vacay in Hawaii by saying he’d checked in with House Speaker John Boehner as well as Senate Majority Leader Harry Reid about the rapidly growing gulf between the two sides, saying he’s discussed options such as extending tax cuts to 98% of Americans, implementing reform for deficit reduction to ensure and stimulate healthy business and extending unemployment benefits.

As of today, I am still ready and willing to get a comprehensive package done. All of us, every single one of us, agrees tax rates should not go up for the other 98% of Americans,

Obama said. And then he was off. Meanwhile, the political bickering that’s about two seconds from needing a Supernanny intervention continues between Reid and Boehner.

But the question consumers are asking now, is how fiscal cliff, should it come full circle, will really affect their households.

Taxes and the New Year

Naturally, if we’re paying more in taxes, we’re likely going to be paying less on our personal debt obligations, specifically, our credit cards. Many consumers are heading into the new year with one goal: decrease their credit card debt. The only way to do that, of course, is to pay far more than just the minimum due. Some financial counselors are saying there could be an increase in consumers turning to their credit cards to cover everyday expenses, too. This has the potential to become a double whammy.

Remember, credit card debt is once again on the rise. In fact, in the third quarter of this year, the average credit card balance increased by 4.9% from the same time last year. The numbers were released by TransUnion and the numbers are also showing consumers are once again making late payments after we saw a decrease throughout the year. Even significantly late payments of 90 days or more are on the rise. Falling off the fiscal cliff could be catastrophic.

Remember how difficult things were for millions of Americans in 2009, 2010 and for many, still? That dreaded “r” word became familiar topics of discussion with the media. The recession is a very real probability one more time.

Banks and credit card companies are going to be forced to rethink their lending models as well. If we indeed go back into another recession, banks are going to tighten their loan approval processes, credit card companies will begin reining in their perks and benefits and the lost revenue is going to drive them to the edge.

Good Credit Counts, But Not Much

So you think your sterling payment history and overall relationships with your card company and your bank is enough to keep the changes to minimum? You could be wrong; in fact, you can expect to see some kind of change and possibly, your credit limit to be cut with only a few exceptions. Worse, those same banks and credit card companies might be raising their interest rates, too. Remember though: courtesy of the new financial laws, those companies and other financial entities are not allowed to change your APR without proper notice.

Get ready to see fewer of those impressive credit card offers, including the low APR introductory offers. If you’ve been paying attention, you know the big banks and credit card networks have been in competition for your business over the past year. They’re hopeful for a better financial future, but that was before things got so…distracting…in the efforts of avoiding the fiscal cliff. They are sitting on “go” and are prepared to reshape their credit card offers. Some changes might be easier to handle than others. For instance, those 18 month intro rates could shrink to, say, 15 or 12 months.

National Credit Downgrade

And speaking of higher interest rates, the U.S. could see its credit rating downgraded. Without a bipartisan agreement, all three national agencies, including Fitch, Moody’s Investors Services and S&P, have all said they will be closely monitoring the government. The whole country could be at risk for a credit cut, but rest assured – you and I will be the ones who shoulder the higher interest rates the country could face. Not only will we be paying higher taxes, but we could be paying higher interest and then, we could get hit again with another tax hike if the country’s credit is downgraded.

So, we are once again at the mercy of Congress. Boehner continues to remind Americans that the House has long since addressed the the fiscal cliff with its many plans that were ultimately rejected. Reid, on the other hand, has had his face time in the media, stating,

Let me be plain: There is nothing preventing the speaker from taking up our bill and giving middle-class families certainty.

No one believed these politicians would actually work right up to Christmas; after all, they are politicians, but now, some have taken it a step further and are saying they won’t return until there’s something to return to. House Leader Eric Cantor tweeted last week that the House would stand ready to return after the Christmas holiday – provided, of course, there’s something to return to.

And, of course, the president had the final word:

I want to wish every American a Merry Christmas – because we didn’t get this done, I will see you next week.

We’ll see.

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