Credit card companies are raising the amount you have to pay each month. Minimum payments have traditionally been set at two percent of what you owe, but are fast becoming adjusted to four percent. This practice has already begun by several major credit card companies and it's spreading among others.
Is this good news or bad news? Well, depending on your situation it could actually be both.
Pros of Paying Higher Minimums: It'll Take Less Time to Pay off What You OweHere's why. If you owe $8,000 on your credit card, which is the average amount of credit debt Americans carry, and you pay the minimum at the average rate of interest (about 18 percent), then it will take you about 30 years to pay off. At that pace, you'll end up paying nearly $20,000 in interest.
However, by paying four percent minimum payments instead, even at the same interest rate, you'll pay off the $8000 in just ten years and you'll only spend about $4500 in interest. Of course, that hypothetical case assumes you're not making any more purchases with the card. So this how you can actually save money by paying more. Because you'll be paying more towards your balance every month, you'll get out of debt sooner than if you were paying a smaller minimum payment. So long as your interest rates stay at the same level, a higher monthly payment is a better debt-repayment strategy. However, this isn't great news for everybody. Cons of Paying Higher Minimums: You Can't Afford MoreThe problem is for families who are barely meeting the two percent minimums now have to come up with almost twice as much money each month to keep current on their credit cards.
If a family has the average amount of debt, $8000, the amount they must now pay has gone from about $160 a month to $320. Where will the extra $160 come from? Does it mean taking on another job or does it mean cutting back somewhere else?
The worst thing you can do is be late or to miss payments with your credit card as this will lead to even higher interest rates as well as negative information on your credit report. Budgeting becomes increasingly important, as do other debt-payment strategies.
Talk to Your Credit Card CompanyIf you're really strapped to come up with your minimum credit card payments, you need to call your credit card company. If you explain to them, you want to take care of your debt, but cannot afford the minimum, you'll find they'd rather you pay something than nothing and will usually be willing to work out some sort of arrangement. If not, you can contact a debt counselor to handle the negotiations.
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