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Minimum Credit Card Payments on the Rise
Federal regulators are pressuring major credit card companies to increase the current minimum credit card payments from 2% to 4% of the total outstanding balances. The regulators argue that taking such a step would help consumers get out of debt sooner and hence reduce their overall interest charges.
On the other hand, credit experts’ claim that while 40 % of all Americans pay their credit card balance in full every month, the other 60% are barely able to make the minimum payment. These experts argue that such an increase in the minimum payment would be too harsh on the majority of credit card holders.
How the New Regulation Benefits Consumers
The credit industry is set up in such a way that it allows consumers to spend beyond what they earn. This methodology and spending patterns have put Americans at greater debt risk and the statistics prove that point. According to the credit industry experts, an average household owes more than $10,000 in credit card debt alone.
In order to payoff a balance of $10,000 using the 2% minimum payment and 13% interest rate or Annual Percentage Rate (APR), the customer will have to pay $200 per month for the next 33 years. Now let’s try the same calculation with a 4% minimum payment instead of the regular 2%. The customer’s monthly payments would increase to $400 but the credit card debt would be paid off in just 13 years instead of 33 years.
The new regulation will force credit card companies to play a greater role in assisting their consumers in overcoming their debt problems by being more assertive. The federal regulators believe that increasing the minimum amount would help consumers liberate themselves from the endless cycle of debt.
The Negativity Surrounding the New Regulations
Many experts argue that forcing people to pay inflated minimum payments will further damage their financial well-being. Already, most of the consumers work two jobs or overtime to pay off their bills and almost all of them are in no condition to allocate extra cash towards their minimum credit card payments. Credit experts also believe that many consumers who are unable to come up with the extra cash will be heavily fined with late fees and other penalties, which would lead to additional financial woes for the consumers
Adapting to the New Regulations
Even though the new regulations seems to be harsh on the average consumer who is already in substantial amounts of debt, paying off the debt sooner with less interest payments will eventually benefit the consumer. Consumers who find it difficult to come up with the extra cash might be able to free up some funds by sensible spending or by following a well-prepared personal budget.
If the customer is unable to meet the inflated minimum payment requirements, it is best to contact the creditors immediately and explain the situation. Most creditors will temporarily reduce interest charges and may even cancel outstanding late fees and other charges.
Customers who often fall behind on their payments should obtain professional assistance from personal finance experts. Non-profit credit counseling companies such as CreditGUARD of America are created to provide these services to consumers who are currently experiencing high debt and interest charges. Credit counseling companies can reduce or even eliminate debt and interest charges and can consolidate all your debt into a one low monthly payment.