I was interviewed for a newspaper article last week about the effects
of debt and the new credit card rules that affect the minimum payment
credit card companies can now charge. If you want to read it, click here. It just ran yesterday on the front page of the business section.
Basically the premise of the article was talking about the fact that
Americans are drowning in consumer debt and it is a very serious
problem. The new rules state that the credit card companies are now
going to double
the minimum payment that is required sometime between now and the first
part of the year. You might say ?yikes?, but upon further
investigation, it should be a good thing. Let me explain.
The average amount of debt on credit cards is about $9000. If you were
only making the minimum monthly payments (about 2% of the balance or
$180) it would take about 28 years to pay off the balance. You would
have paid the original $9000, plus over $50,000 in interest payments.
By simply doubling the payment to $360, it cuts the time down to about
4 years and you only end up with $3000 in interest payments. The main
problem that people will face is coming up with the extra money to pay
it and that is going to be the make or break point.
The question that I asked myself when I first heard about the change
was ?Why would the credit card companies want us to pay off the loan
quicker and with less interest payments?? Quite obviously the answer to
me was two fold. First, they would be getting twice as much in minimum
payments each month, which will increase their bottom line
substantially. The second and less obvious reason is that they know
that as we pay off the debt, we will incur more debt to replace it, so
they are actually not giving up the interest, but making a lot more.
What this means to us is that we need to pay off the cards and control
our spending. Learn the rules of the game so that you can control your
own future. Don?t leave it up to the financial institutions.
Please comment if you have anything to add and forward this post to your friends.