For years, major credit card companies have allowed cardholders
to make minimum payments of 2% of the outstanding balances on
their credit cards. Having customers pay the minimum doesn’t
reduce the balance by very much, but when the 18-30% interest
rates that many credit cards charge is applied, the result is a
profitable ones for the banks that issue credit cards. A balance
of $1000 can take nine years to pay off at 20% interest if the
borrower only pays the minimum due each month.
Clearly, it is not in the best interests of consumers to pay the minimum
every month. But tens of thousands of Americans do just that,
carrying huge balances and paying the minimum every month. The
average household now carries $10,000 in credit card debt; for
many people, paying the minimum is all they can manage. Due to
changes in Federal law, several major credit card issuing banks
will soon raise the minimum amount due to 4%. This might seem
like a small increase, but if you are already deep in debt and
paying the minimum amount, this could cause your payments to
double. If you have a $10,000 balance and you are paying $200
per month, you will soon need to come up with $400 instead. Many
people will find this impossible to do, as they are already
paying as much as they can. What solutions are
available?
The usual common sense rules of credit card
use apply here. Stop using your credit cards. See if you can
consolidate your debt on another credit card with lower
interest. See if you can cut out some unnecessary expenses in
order to free up some more money to pay your balance. Consider a
home equity loan to consolidate your debt. Call your card
issuing bank and see if they can work out repayment plan or
lower your interest rate. There are numerous solutions
available, but card holders need to be aware that the minimum
payment is rising, and it isn’t going to come back down. By
charging a 4% minimum, the credit card issuing banks are hoping
that consumers will pay off their debt a bit sooner and that
fewer consumers will find themselves in a situation where filing
for bankruptcy is the only solution. And once October comes
around, even filing for bankruptcy will be more difficult.
Credit card holders with large balances on their accounts should
give considerable thought to reducing their debt now, as payment
options and requirements are going to be more strict from now
on.
