Universal Default and The Credit Card Act

December 2nd, 2009 by Reed Allmand

Once the Credit Card Act of 2009 is implemented in February credit consumers will receive relief from some of the credit card industries most damaging practices. One of those practices, Universal Default. will become illegal.  Universal Default is a provision often found in credit card policies which states that if you are more than 30 days late on any payment to any of your creditors, the interest rate on your credit card will skyrocket. This could be as much as two, three or even four times your original interest rate.  This provision can be particularly devastating for credit card debtors who are facing foreclosure, job loss or a medical emergency.  When financial crisis strikes oftentimes Americans must choose between paying the bills and putting food on the table. The choice they should make is obvious. But if making the obvious choice creates a domino affect with their finances, the problem will only become worse.

While credit card companies know that universal default will become an illegal practice in 2010, many are still using the clause while they can to maximize their profits and shore up their reserves before the new law cuts into that income stream. So what can you do to avoid becoming the victim of universal default?

Scrutinize your credit card policies. If you notice that your credit card has a universal default clause, you may want to pay off that balance and close the card if possible. If the credit card company enforces the universal default clause you could end up paying much more in debt interest payments over the long-term unless of course you discharge the debt in bankruptcy.