8/20/05

Have your credit card "minimum payments" just doubled?

First...you need to know this.  You are not alone.  There are approximately 35,000,000 other Americans...right now...with the same problem.

What happened?

For way too long, the government has allowed credit card companies to set minimum payments so low that almost your entire payment was interest, late fees and over-the-limit penalties.  The problem is that more and more good, hard-working Americans...just like you...were ending up deeper and deeper in debt. 

The credit card companies really liked this deal, because it meant that you would never get out of debt and that meant that the credit card companies had you trapped paying them interest, late fees and over-the-limit penalties for the rest of your life....and this meant huge profits for the credit card companies...at your expense.

Finally...the government wised up, but rather than force the credit card companies to tighten up on their lending practices and therefore keep people from borrowing money that they can't afford...instead...the government forced the credit card companies to raise minimum payments. 

The idea is to force you to pay off more of your outstanding credit card debt each month, with the hope of getting you out of debt. 

If you are one of the lucky ones that can afford to pay higher minimum payments...no problem.

But...if you are one of the estimated 35 million Americans that are "just making it" paying minimum payments, this change...for lack of a better term...really puts the screws to you.

Here is how the change works:

It used to be that your minimum payments were computed as 2% of your outstanding credit card debt.  So, let's say you owe $20,000 on your credit cards.  You minimum payment was set at $400 per month (which is $20,000 x .02).

Set at 2%, this kept your minimum payments low.  The problem is that a payment set this low would virtually never get you out of debt.

For example, let's say your interest rate is set at 18% per year.  Paying a minimum payment of only $400, it would take you 830 months (that's 69.17 years) to get rid of the debt.  And, during that time...if you lived that long... you will have paid $58,931.59 in interest. 

And....this assumes: (1) that you never use the credit card again, and (2) that you never make a payment late

On the hook paying interest for 69 years.  What a great deal for the credit card companies.  Is it any wonder that the credit card companies have been making so much money.  And...you know who's paying the freight...YOU ARE.

Under the proposed change, the credit card companies are supposed to raise your minimum payments to force you to pay each month a payment based on 4% of your total credit card debt, instead of 2%. 

Very  simply, that means that your minimum payments "double".

Back to our example, this means that your monthly payment  on $20,000 in credit card debt goes from $400 per month to $800 per month.

If you can afford the increase...great!  You will get out of debt that much sooner. 

But if you are one of the millions of Americans who have been "just making it" paying minimum payments set at 2%, how in the world are you going to pay "double" the amount? 

The answer is: "You can't, and you won't". 

And, that's when the real fun begins.  It goes like this.  When you can't pay the "new" full minimum payment, you will automatically get charged a late fee of $39 to $59 per credit card each month. 

And then it gets even worse.  If you don't pay the "new" full minimum payment, the credit card company is going to get concerned...and you know what happens when a credit card company gets concerned?  It raises your interest rate to something astronomical....between 20% and 30%, ....depending upon what the credit card company thinks it can get away with. 

When your credit card companies do this...you are really screwed.

Before the new increase in minimum payments, it was going to take you forever to get out of debt...but at least had a chance at staying current. 

So what do you do?

Just because they are raising your minimum payments
...does NOT mean you have to just sit there and take it!

You do have a choice.

The choice that gets rid of debt;
The choice that stops late fees;
The choice that stops over-the-limit penalties;
The choice that can get rid of minimum payments permanently;

The choice that will let you stop worrying;
The choice that will let you sleep at night;
The choice that will give you a "fresh start";
The choice that will give you a chance "start over";
The choice that will put you back in control.

And you know what that choice is....Bankruptcy.

The Federal Bankruptcy Laws were designed to help you.  That's what they are for...to get you out of debt and back on your feet.

Now that they have raised your minimum payments,
Now that the credit card companies have forced your hand,
....doesn't it make sense to at least find out how bankruptcy works
....and what it can do for you and your family.

Promise me this.

That you will keep an open mind about bankruptcy for at least a few minutes.

And while your mind is open...that you will check out at least the following 2 topics: