 Although
new federal legislation affects almost every American household,
it has not been widely publicized. Credit card companies are
quietly raising your minimum payment from 2% to 4%.
Under the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005, the minimum monthly payment on credit cards must
include all of the interest and a portion of the principal
each month. Although these guidelines were approved in 2003
by the US Treasury Department, many of the credit card companies
are just now beginning to implement them.
The new federal legislation also will require credit card
companies to include a warning on monthly credit card statements
that informs consumers about the length of time they will
be in debt if they make only the minimum payment.
According to an example by one financial publication, if you
have a $5000 credit card balance at an interest rate of 13.5%
and a minimum payment of 1.67%, it will cost you $9538 in
interest and take 41 years to pay off. A higher interest rate
of 19.8%, but a minimum payment of 3%, will cost $5858 in
interest and take only 21 years to pay off. New payments are
required to cover all fees and interest and pay down at least
some of the outstanding credit card principal.
The average credit card debt per American household is $10,000.
While lower credit card payments have encouraged us to spend,
it has also increased our consumer debt. Increased minimum
payments will probably force consumers to take a second look
at what they can afford and they will probably start carrying
less debt.
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If you’re one of the many people who live paycheck to paycheck
and will find it difficult to afford the increased payment,
make every effort not to default on your credit card payment.
This will lead to more problems, including calls from debt
collectors. Call the credit card company to see
if you can negotiate a lower repayment arrangement.
Here are a few other suggestions to help you make those payments:
-
Look
at how much you are withholding from each paycheck. Many
people withhold more from each paycheck so they can receive
a nice refund at tax time. It may be that you could withhold
less and have more money each month instead of at the end
of the year.
-
Find
ways to curb your spending. Take your lunch to work instead
of eating out or perhaps delay buying that new pair of shoes.
-
Before
filing for bankruptcy, talk to a credit counselor—a requirement
for bankruptcy filers under the new law.
-
Take
all credit cards, except one, out of your wallet and lock
them away but be sure to keep payments current on ALL cards.
While this may present an initial
hardship, this move will enable you to pay off your credit
card debt faster.
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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