Credit Card Companies Can Now Double Your Payments

A recent report from Bankrate.com explained the reasons for the new policy. "Over the past few years, low minimum payback rates of between 2 and 2.5% have encouraged Americans to spend, spend, spend -- and to rack up an average credit card debt of close to $10,000 per household. For the estimated 40% of cardholders who carry a balance from month to month, the low minimums free up cash. But paying off a big charge little by ever-so-little also means that a $1,000 debt can turn into a 22-year commitment -- and that you'll accumulate thousands more in interest in the meantime."

"People are now in a revolving debt cycle that they'll never escape, says Adam Brauer, a debtor advocate and in-house counsel for Debt Settlement USA in Scottsdale, Ariz. "So the government nudged credit card companies into saying, 'This isn't working.'"

It's not all bad news if you can handle the new payments. "'If you pay more per month, you'll get out of debt quicker and you'll pay less interest,' expains Mike Peterson, vice president and co-founder of American Credit Foundation, in Midvale, Utah."

"Of course, if your finances are already squeezed to the breaking point, the rate hike is a bitter pill to swallow -- good for you in the long run, but hard to take right now. 'If you're living paycheck to paycheck and your minimum goes from $200 to $275, spread over five cards, that's and extra $375 a month,' says Brauer. 'A lot of families can't come up with that.' The banks already know that and are planning for it. Bank of America, one of the first to raise minimum payment requirements, worked an extra $130 million into its 2005 budget to cover projected losses from defaulting cardholders."

The article lists some practical ways to deal with the higher payments:

-"Pay less to Uncle Sam. In 2004, 80% of taxpayers got a refund -- on average, $2,400 a pop. By adjusting your withholdings, you can keep that money in your own pocket and put an extra $200 a month toward your debt."
-"Curb your spending. Even small changes, like brown-bagging lunch or renting one DVD a week instead of three, can free up 10 to 15% of your income, says Peterson. To find expenses you can shave, track your spending for seven days. You may be surprised at how relatively small expenses -- like 75 cents for a Diet Coke from the vending machine -- add up over time."
-"See a credit counselor. The new bankruptcy law mandates at least two financial counseling sessions during the bankruptcy process, but if you see a counselor now you may be able to avoid reaching that point altogether. For help finding one, visit the website of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling."
-"Control your cards. Paying down a big debt is hard enough without adding more fuel to the fire. To avoid the temptation to spend, 'Take every credit card except one out of your wallet,' recommends Cate Williams , vice president of financial literacy for Money Management International in Chicago. 'Lock them away. People have frozen them in bowls of ice or given them to a trusted friend. I'm concerned about people walking around without some means of emergency cash. But we all agree what an emergency is, and a shoe sale at Nordstrom is not it.'"