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Old 05-16-2005, 09:20 AM   #1
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You might as well put on a diaper . . .

. . . because some of you are going to be crapping yourselves. If this is the case, a lot of people are screwed. Time to consolidate!

Your credit card payment just doubled
The big players have raised minimum payments from 2% to 4% of your balance, meaning you'll get out of debt much quicker. Here's how to cope until that day.


Good news: Credit card companies are doubling their minimum payments.

Bad news: Credit card companies are doubling their minimum payments.


So far, MBNA, Citibank and Bank of America have announced they are doubling minimum monthly payments on credit card balances from 2% to 4%. Others are expected to follow suit quickly. To some cardholders, that could be seen as a good thing. To others it could be devastating.

If you can handle the increased payment it's good. Let's face it, if you pay only a 2% minimum each month, your debt would probably last longer than most marriages. Doubling your minimum might put you back on the financial straight and narrow. Ostensibly designed to help consumers get out of debt faster, the increased minimums will force cardholders to pay off fees, interest and at least a portion of the principal each month.

But if you simply can't make that doubled minimum month after month, it could put you and many other debtors in over your head.

Why it's happening
Over the past few years, low minimum payback rates of between 2 and 2.5% have encouraged Americans to spend, spend, spend -- and to rack up an average credit card debt of close to $10,000 per household. For the estimated 40% of cardholders who carry a balance from month to month, the low minimums free up cash. But paying off a big charge little by ever-so-little also means that a $1,000 debt can turn into a 22-year commitment -- and that you'll accumulate thousands more in interest in the meantime.

"People are now in a revolving debt cycle that they'll never escape," says Adam Brauer, a debtor advocate and in-house counsel for Debt Settlement USA in Scottsdale, Ariz. "So the government nudged credit card companies into saying, 'This isn't working.'"

Specifically, regulators with the Office of the Comptroller of the Currency began pressuring credit card companies to raise minimum payments. Another incentive for change: The newly enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which requires credit card companies to post a kind of Surgeon General's warning on monthly statements that notifies consumers about how long they'll be in debt if they make minimum payments.

Help for big spenders
Although increased minimum payments aren't a panacea for consumer debt, most financial experts think they'll help.

"If you pay more per month, you'll get out of debt quicker and you'll pay less interest," explains Mike Peterson, vice president and co-founder of American Credit Foundation, in Midvale, Utah.

Take the $2,000 Hawaiian cruise you charged to a card with an 18% interest rate. If you faithfully make minimum payments and never add another dime to the balance, it'll still take you about 30 years to pay off the trip -- and you'll end up forking over almost $5,000 in interest. By making 4% minimum payments on the same debt, you'll finish up in 10 years, and your interest payments will be around $1,100. "It's a huge saving in time as well as interest," says Peterson.

Another way increased minimums may cut debt is by forcing buyers who think in terms of monthly installments to take a second look at what they can afford. The new minimums will effectively double the monthly price of a purchase, turning a $40-a-month payment for a new sofa into an $80-a-month one. "People charge up to the point that they feel they have room within their budget to afford those payments," Peterson explains. "If I'm trying to figure my budget based around what my credit card payment is going to be, I'll be able to carry less debt."

Bad news for big debtors
Of course, if your finances are already squeezed to the breaking point, the rate hike is a bitter pill to swallow -- good for you in the long run, but hard to take right now.

"If you're living paycheck to paycheck and your minimum payment goes from $200 to $275, spread over five cards, that's an extra $375 a month," says Brauer. "A lot of families can't come up with that." The banks already know that and are planning for it. Bank of America, one of the first to raise minimum payment requirements, worked an extra $130 million into its 2005 budget to cover projected losses from defaulting cardholders.

But default isn't your only option if your new payment seems out of reach.

"I always tell people there are two sins: not paying, and not paying as agreed," says Cate Williams, vice president of financial literacy for Money Management International, in Chicago. Most creditors would rather opt for the latter, so give your credit card company a call to see if you can either negotiate a reasonable payment arrangement or reduce your interest rate. Otherwise, missing a payment can quickly have you fielding calls from collections agencies -- and at that point, no one will be willing to listen to you, says Williams.

Coming up with the cash
If you've been carrying a big credit card balance and suddenly need an extra $300 a month to make your minimum payments, now's a good time to re-examine your finances. With some smart spending shifts and careful planning, virtually anyone can dig an extra 10 to 15% out of their budget.

Here are some ways to get started:
• Pay less to Uncle Sam. In 2004, 80% of taxpayers got a refund -- on average, $2,400 a pop. By adjusting your withholdings, you can keep that money in your own pocket and put an extra $200 a month toward your debt.
• Curb your spending. Even small changes, like brown-bagging lunch or renting one DVD a week instead of three, can free up to 10 to 15% of your income, says Peterson. To find expenses you can shave, track your spending for seven days. You may be surprised at how relatively small expenses -- like 75 cents for a Diet Coke from the vending machine -- add up over time.
• See a credit counselor. The new bankruptcy law mandates at least two financial counseling sessions during the bankruptcy process, but if you see a counselor now you may be able to avoid reaching that point altogether. For help finding one, visit the website of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.
• Control your cards. Paying down a big debt is hard enough without adding more fuel to the fire. To avoid the temptation to spend, "Take every credit card except one out of your wallet," recommends Williams. "Lock them away. People have frozen them in bowls of ice or given them to a trusted friend. I'm concerned about people walking around without some means of emergency cash. But we all agree what an emergency is, and a shoe sale at Nordstrom is not it."

I saw this at

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Old 05-16-2005, 09:30 AM   #2
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Credit cards are the worst form of debt. Use them only if you can pay off the outstanding balance each month.

It seems as if we are taught to spend as a way to cope with life. Living a modest, humble life is not the popular option these days.

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Old 05-16-2005, 10:01 AM   #3
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I actually think this is a good idea. As someone who was once a bit too liberal with her own plastic, I'm all for digging out of the hole faster. If people can't make the doubled minimums, it seems like most companies will be willing to deal.

I'm thinking of picking up a part-time job for the summer. If I can do that, I'm doing the cards-in-a-bowl-of-water-in-the-freezer thing. That way, I won't do something silly like pull out the card for a shoe sale, but I can still have them in case of actual dire need. I'm thinking I can have one of my cards paid off by the end of this year and another one paid off by next summer if I can maintain a disciplined budget.

to getting out of credit card debt
and you hunger for the time
time to heal, desire, time

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Old 05-16-2005, 10:07 AM   #4
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^ didja have fun on saturday night, Pax?

i'm still swimming in a bit of credit card debt, but i feel fully justified as i used it to buy gas and groceries when i was unemployed.

that said, still sucks to loose X amount of dollars each and every month to pay that damn thing off.
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Old 05-16-2005, 10:08 AM   #5
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Yep, mine just doubled but I always doubled it anyway. Now, though, I won't have the luxury of not doubling it during a tight month which means I have to be more disciplined all around. I'm all for it.
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Old 05-16-2005, 10:59 AM   #6
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mine hasn't doubled yet, but I usually more than double it anyway, though I don't pay as much as I could because I think it is more important for me to save as much money as possible right now because I am about to graduate from college. Can't wait for the student loan payments to start though , they'd better not double those or I will crap myself.
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Old 05-16-2005, 03:29 PM   #7
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$10,000 of credit card debt for the average household? Oh man, that's crazy. I can understand if you were unemployed or there was some kind of emergency, but I've never had close to that much. You have to remember that it's money even if it is plastic. It's good to carry a balance because it proves you can carry debt, which the mortgage lenders like. But there's a difference between a few bucks here and there and being in the hole.

Does anyone remember the Save Karyn web site, where the girl asked for money because she bought $400 purses and $600 shoes? just in case. I thought that girl was nuts especially considering I moved to NYC at the same time and was buying generic food and shopping at the cheap stores because I didn't have money.

And this also reminds me of an episode of Sex and the City. The lead character -- Carrie -- couldn't afford to buy an apartment and realized her Manola Blahnik shoe collection was worth the same amount as a down payment. Which would you rather have -- shoes or a house? Think about that the next time you pull out your card for those Jimmy Cho shoes you just HAVE to have.
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Old 05-16-2005, 07:51 PM   #8
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And then there's the dog's vet bills....
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Old 05-16-2005, 09:07 PM   #9
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Originally posted by sharky

And this also reminds me of an episode of Sex and the City. The lead character -- Carrie -- couldn't afford to buy an apartment and realized her Manola Blahnik shoe collection was worth the same amount as a down payment.
I is bizzare thinking that anyone woul have purchased 60k in shoes while renting from a boyfriend.....I miss that show.
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Old 05-17-2005, 04:48 AM   #10
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i hate credit cards. thank goodness i don't have one and i don't plan to have one anytime soon.
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Old 05-17-2005, 05:07 AM   #11
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Originally posted by nbcrusader
Credit cards are the worst form of debt. Use them only if you can pay off the outstanding balance each month.

It seems as if we are taught to spend as a way to cope with life. Living a modest, humble life is not the popular option these days.
Well said. If you don't have the money to pay for something you don't need to buy it. I may have less but I have peace of mind.
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Old 05-17-2005, 05:14 AM   #12
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I don't have a credit card, but I have a debit card, which can be as crazy as having a credit card with Ebay on the scene.
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Old 05-17-2005, 05:18 AM   #13
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There's an ill wind blowing. There will be a reckoning.
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Old 05-17-2005, 11:47 AM   #14
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Credit cards can be used for good, not just evil. They can be useful in emergencies, where having enough cash available isn't possible. Also, without credit cards, you don't establish much credit, which can be a problem when you're trying to buy or rent a place to live.
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Old 05-17-2005, 12:02 PM   #15
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They're also safer to use than debit cards especially for online purchases because you aren't liable in the case of credit card fraud whereas with your debit card your cash is just gone. I use my debit card around town in places I trust but when I travel or shop online to book flights, hotels, etc., I use my credit card.

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