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Credit card payments

Credit card Payments-Increase in Minimum Payment due

America is a nation addicted to credit cards. With nearly 1.5 billion cards in circulation, there is good reason to believe that its one facet of our daily existence that encompasses most Americans.

Credit card payments as the name suggests is a piece of plastic that allows the holder a credit limit. Its like an unsecured loan. This loan like any other loan has to be repaid back. However the good news is that this loan need not be paid back in one lump sum, but the outstanding can be revolved i.e. carried forward to the next month. In other words you can carry forward the balance by paying finance and interest charges.

Credit card companies to encourage greater spend on your card and also to earn more do not insist on 100% payments. They only stipulate a fraction of the amount for payment at the end of a month.

For this purpose Credit card payments companies generate a bill every month. This lists all your purchases and also the total outstanding on your card. Many of the companies stipulate a minimum payment of 2 % of the outstanding amount. This looks nice but the result over a long period can be catastrophic. You need only to pay the minimum amount due for you to remain credit worthy. But a payment of just 2% of the outstanding will allow your debt to linger for many decades and you can end up paying more in interest charges than the amount you borrowed. But there is a change for the better. Credit card companies are doubling their minimum payments from 2% to 4%.

This is also bad news for some as the fact that Credit card companies are doubling their minimum payments means that you will have to fork out larger payments every month. In case you have multiple cards the effect on your finances would certainly need streamlining.

So far, MBNA, Citibank and Bank of America have announced they are doubling minimum monthly payments on credit card balances from 2% to 4%. There is a good chance that soon others will follow suit.

If you can handle the increased payment it's good. Let's face a home truth; if you pay only a 2% minimum each month, your debt would probably last a long time. Doubling your minimum can put you back on the financial path to good health. The increase in minimum payments has been designed to help consumers get rid of their debt faster.

But if you simply can't afford to make the doubled minimum every month , it could put you and many other debtors in a great deal of trouble.

Over the past few years, low minimum payback rates of between 2 and 2.5% have encouraged Americans to spend more and more on thier Credit card payments. The result is that an average credit card debt has risen to nearly $10,000 per household. Its a fact that nearly 40% of cardholders who carry a balance from month to month, the low minimum payment does give them some more free cash. However in case you have a spend of $ 1000 on your credit card and pay only the minimum amount due, then this debt would need a 22 year period to be liquidated. Thats a sobering thought. You will also end up paying thousands more in interest charges.

With the massive credit card debt spiraling upwards the Government has nudged the credit card companies to increase the minimum payment due upwards.

Regulators with the Office of the Comptroller of the Currency have specifically started pressuring credit card companies to raise the minimum payments due on the outstanding. Another reason for raising the minimum payments is the newly enacted Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005. This act is extremely consumer friendly and requires credit card companies to post a warning on the monthly statements that must notify consumers about how long they'll be in debt if they make only the minimum payments. Its like a warning by the Surgeon General on a pack of cigarettes.

It must be understood that increased minimum payments is not a magic wand for all consumer debt, but it will certainly be help. There is no doubt that if you pay more per month, you'll get out of debt quicker and you'll pay less interest. Mike Peterson, vice president and co-founder of American Credit Foundation, in Midvale, Utah is a strong supporter of this increase in minimum payment due.

An example will show the effect of buying an item for e $2,000 and charge it to your card with an 18% interest rate. If you only make the minimum payments due as stipulated and do not add to your outstanding balance, than it'll still take you about 30 years to pay off the entire debt. By making 4% minimum payments on the same debt, the entire payment would be over in 10 years, and your interest payments will also be much less. So one can see which side the bread is buttered.

Increased minimums may also cut debt by forcing buyers who think in terms of monthly installments to re-evaluate their purchase. The new minimums will effectively double the monthly price of a purchase, turning a $50-a-month payment for a new Divan into a $100-a-month one. So a buyer will certainly have a rethink and may go in for a cheaper option and thus incur less debt.As with all new schemes there is also a negative effect. In case your finances are already at a breaking point, the rate hike is a bitter medicine to swallow for the present, though good as a cure in the long run. There is thus a chance that you could also default in your payments. The banks are already aware of this consequence and have planned accordingly. Bank of America, one of the first to raise minimum payment requirements, had catered an extra $130 million into its 2005 budget to cover projected losses from defaulting cardholders.But defaulting on your new payments isn't your only option. The best options in that case Credit card payments is to a call your credit card company and try to either negotiate a reasonable payment arrangement or reduce your interest rate. Otherwise, missing a payment can quickly have collection agencies at your door. At that point you will be alone with no one to help you.

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