PHOENIX, Ariz. (January 10, 2006) Americans are headed into the New Year battling record heating costs, high gas prices and mounting receipts from the holidays. Now, to add to their woes, millions of credit card holders are finding significant increases to their minimum payments. For the next few months, their minimum payments could even double until their credit card balances are reduced.
MBNA, Citibank, Discover, Capital One and Bank of America have announced they are implementing January 2003 guidelines issued by the Federal Reserve, requiring the monthly increase. Credit card holders are now required to pay amounts that could easily equal 4 percent of their total balance each month, while 2 and 2.5 percent was standard until 2006. More banks are expected to follow suit.

Mike Sullivan, director of education for Take Charge America, a non-profit credit counseling company, says many card holders will take a financial hit in the short run, but it's more important to think of long term goals. "If you've only been paying the minimum balance on your credit card, it might be a struggle to come up with extra cash each month," he said. "Just keep in mind, you'll be making those payments for a drastically shorter time period, and potentially saving thousands of dollars in the long run."

Sullivan adds that the real impact of this change is the inclusion of the fees and some of the principal amount that must be paid. If a client is in some trouble, they may have late fees of $29 a month, with interest at 2.42 percent a month, plus the 1 percent of the principal. If that client has a $5,000 balance, the $29 late fee is equal to another 0.58 percent of their balance, thus getting the total up to 4 percent figure that's been kicked around in financial circles.

"In the past, the consumer may only have been required to pay the periodic interest, and possibly less in some cases," Sullivan said.

The credit card industry says average household consumer debt in the United States is about $9,000, excluding mortgages. Many of those Americans are living pay check to pay check and fear the added payment could be the final straw that pushes them into financial ruin. Sullivan has several suggestions to prevent that from happening:

¥ Make a budget and stick to it. A big shoe sale is not a reason to stray from the plan. Write the budget down and check it frequently.

¥ Visit a credit counselor. If you are positive you can't make your minimum monthly payments, creditors have special programs that may be able to reduce monthly payments. Furthermore, new laws require people filing for bankruptcy to meet with a credit counselor at least twice. Meeting with one now, could prevent the mess altogether.

¥ Move your payment due date to several days after you receive your paycheck. This ensures you will have the money to make the payment, as well as less time to spend your money on other items.

¥ Don't apply for more credit cards. If you are struggling to meet the monthly payments for the cards you have now, it's almost certain you won't be able to afford yet another monthly payment.

¥ Use your tax return to pay credit card debt. Don't wait to file your W2. The sooner you file it, the sooner you'll receive a refund. Paying off a large chunk of your balance will reduce the amount of your monthly payments.

¥ Use your savings to pay credit card debt. If you have $100 in a savings account at 3% interest, you will earn a little more than $3 in one year. If the savings is used to pay off $100 on an 18 percent card, you will save $18, six times the interest you would have earned in your account.

¥ Cut down on entertainment expenses. Wait for movies to come out on DVD, rather than shelling out $20 for two tickets, and despite what java junkies say, Starbucks is not a daily necessity. Think more along the lines of brown bagging and board games.

About Take Charge America
Founded in 1987, Take Charge America, Inc. (TCA) is a non-profit 501(c)(3) organization headquartered in Phoenix, AZ. TCA is committed to helping consumers gain control of their finances and offers a variety of services including education, budget and financial counseling, and when necessary, debt management.