Credit. The New Reality.

The banking industry is running scared. They think you won’t be able to keep up with your credit card payments in 2009 as the nation continues to work its way through this economic meltdown.

Of course, that’s a justifiable concern whenever the economy slows down, jobs are lost, and unemployment rises. But what’s different in 2009 is that banks are already re ling from the mortgage-default crisis that has triggered bank failures and shotgun marriages between weak banks and less-weak banks. Banks aren’t exactly in great shape these days and they are painfully aware of a Category 3 hurricane about to bear down on them: National credit card debt is at a staggering $970 billion, 50 % higher than when the last economic slowdown hit in 2000. That’s what happens in an era of “easy” money where banks irresponsibly hand out multiple credit cards to anyone with a pulse, regardless of income, and consumers are all too eager to play along the game, however, is up, my friends. Credit card companies have reversed course. They are now looking for ways to lend less money, especially on accounts they deem risky: consumers with high unpaid balances and poor FICO credit scores.

Reducing credit card limits,

closing down accounts with no warning, and abruptly increasing interest rates are just some of the aggressive tactics the card companies are implementing right now to shore up their business. That means serious repercussions for you throughout 2009. Your FICO score may drop—not because you changed your financial behavior, but because the credit card companies changed the rules on you. The best way to insulate yourself is to get out of credit card debt once and for all. If you pay of your balance, you don’t have to worry about the interest rate on your card.

If you pay of your balance, you are less likely to have your credit card limit reduced; and even if it is reduced, it will not have a negative impact on your FICO score. If you pay of your credit card balance, you can focus on building an emergency savings fund. That’s especially important in 2009. The days of using your credit card as a de facto emergency fund are over. If you tap too much of your credit card line, it is likely you will se the line reduced, your interest rate rise, and, yes, potentially have your card closed down—and there goes your FICO score. Unpaid balances in 2009 will put you in the middle of a vicious cycle. You must get out of card debt now. It is the number one action to take in 2009.