In the last couple of years, you may have seen the . People who were able to pay all their bills before may see that they are now struggling and even falling behind.
Previously, credit card companies were happy to keep minimum payments low. These minimum payments would be slightly more than the finance charges, which would keep the debtor paying for a long time if they were paying just the minimum. This is fairly ideal for the creditors because they can make more money in interest and fees off their clients. By keeping the minimum payments low, they could encourage people to keep spending on the card and to carry the balances month after month. They slower they pay off the balances, the more money the creditor can make.
The main reason that these minimum payments have risen is because of tighter guidelines and restrictions that the government has placed on the credit card industry. The law states that minimum payments have to be high enough that the payee can pay off the balance in a reasonable amount of time. This has been interpreted to include finance charges and fees plus one percent of the remaining balance. This has caused some minimum payments to go up as much as fifty percent, which is substantial if you are carrying several credit cards. Because the system encouraged the carrying of high balances, these new minimum payments could be quite high. The immediate effect of the increase of the minimum payment was that the number of people default on credit card increased.
Though many people have suffered from the short term effect of the , it will have good long term effects. Being required to pay more monthly will encourage people to keep their spending in check. Those monthly payments will also go further towards the balances than smaller monthly payments would, which decreased the amount of interest that will be paid on the accounts.
If you are one of those who suffered with the increase of minimum payments, you need to speak to a credit counselor about what options are available for you. There may be ways to lower those high minimum payments and decrease the amount of time needed to pay off your balances. A credit counselor can also help you determine a budget that will help you avoid credit card debt in the future.
Though , there is help available to pay off credit card debt. Talk to a credit counselor today.
