Paying The Minimum Could Max Out Your Debt
January brought us the new year of 2010. Many of you may have made a resolution to decrease the amount of debt that you owe. It is a good idea to use this year’s first credit card bills to assess your debt and choose the best way to pay it off.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 can be of assistance. The federal law includes changes that restrict over the limit fees, put a curb on marketing to adults younger than 21 and features huge changes in how issuers can impose interest rate increases.
One major change that will happen next month when the CARD Act takes effect is a mandate that credit card statements provide newer, clearer and timelier disclosures of the terms and accounts from before and after the account is closed.
But one key feature is that statements will include details that caution consumers about the detriments of making only the minimum payment. Keep this example in mind:
A person has a $1,000 credit balance at a 17 percent annual percentage rate and sends only the minimum monthly payback which is $15. It will take more than 17 years to pay off the debt. And the total payback would be $3,082.
And if that person paid $5 more a month, it could take just a little over seven years to pay back the debt at a cost of $1,750.
In addition the credit card law orders that statements show the monthly payment required to pay off the existing balance in 36 months, and the statement will also display the total cost of payments and interest.
If you are capable of making your minimum payment, with an additional 20 percent of that minimum each month, it is very likely that you will pay off your debt in three to five years without outside help. The CARD act is expected to have a number of large ramifications and is considered a landmark law.
Mallory Megan is employed by debt collection agency Rapid Recovery Solutions. She also does articles on the credit industry, business, finance, and debt collection. Don’t reprint this exact article. Instead, reprint a free unique content version of this same article.
