The new minimums are designed to prevent consumers from being hobbled for decades by credit card debt. Many credit card holders do not realize that they will never pay off the debt by simply paying minimum payments.
It would take a consumer making only the minimum monthly payment nearly 30 years to pay off a $2,000 credit card balance at 18 percent interest. Total interest payments over that period would be about $5,000. Increasing the monthly payment from 2 percent to 4 percent of the outstanding balance will require only 10 years and $1,100 in financing costs to pay off the same amount.
In the long run, this will benefit consumers because they will pay off their credit card more quickly. In the short term, families that are barely making ends meet with minimum payments may be forced into credit counseling or even bankruptcy. The higher minimum payments must be implemented by the end of December 2005.
Under the new bankruptcy laws, most consumer debtors must obtain credit counseling before they may file for bankruptcy. If you are still unable to meet your obligations after credit counseling, you may be eligible for Chapter 7 or Chapter 13 bankruptcy. For some debtors that cannot meet the new minimum payment requirements, bankruptcy may be the only option.
The decision should not be taken only lightly and only after consultation with a qualified bankruptcy attorney. Please contact us for a free initial consultation if you need further assistance. We are a bankruptcy and debt relief agency. We help people file for bankruptcy.
About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.