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Minimum Credit Card Payments to Rise
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.
©Copyright 2005 by Retro Marketing.
Charles Essmeier is the owner of Retro Marketing, a firm
devoted to informational Websites, including End-Your-Debt.com, a
site devoted to debt consolidation and credit
counseling, and StructuredSettlementHelp.com, a site devoted to
information regarding structured
settlements.
MORE RESOURCES:
Credit - Google News
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