I have painfully found that the minimum payments are on the rise.
We have always paid a little more than the minimum, but we cannot
manage the doubled minimums now. I have spoken to the credit card
companies about my inability to make the complete minimum payments
but they are unwilling to help me work out a plan. They instead
send me to a credit-counseling service. I don't want to declare
bankruptcy, but I am thinking about it because of the news about
the implementation of the stricter bankruptcy rules. Please give
me some advice. Many of my friends are in the same situation. Thanks.
Let me say this, and say it loud and clear: The
game has changed and will never be the same again. By the end of
2005, it will no longer be possible to use a credit card to make
a purchase and carry that balance forever without paying it off!
Also, it has been widely reported that minimum payments
are doubling from 2 percent to 4 percent. This is just not true.
They are increasing, but not by a set percentage.
Unfortunately, you are among the many who will find
it difficult to pay the new minimum payment standards that have
been or will be raised by creditors under new federal guidelines.
Here's my take on this: The Office of the Comptroller
of the Currency, or OCC, regulates national banks and is concerned
that many people have credit card balances that will take virtually
forever to pay back. The OCC, Board of Governors of the Federal
Reserve System, Federal Deposit Insurance Corporation and Office
of Thrift Supervision have proposed that, by the end of 2005, credit
card companies establish reasonable periods for paying back balances.
The suggestion is a seven- to 10-year payback or amortization period.
In addition, bankruptcy law changes set to take place
in October 2005 will make it harder to get out of repaying debts,
such as credit card debts.
The effect of the two coming at the same time is that
first, the minimum payment will be more, and second, you are more
likely to have to pay it.
What can you do? Well, while some banks are still
at the 2-percent repayment level, you can transfer your balances
to them. This will help until the transfer period is over or until
the end of 2005. Then you may be able to find a bank or credit union
that does not have to follow the guidelines and may still be operating
under the old rules. But don't expect this to last.
You made the right move in contacting your creditors
to let them know that you would have trouble making higher payments
and requesting to work something out. Regrettably, your creditors
were unwilling to help and referred you to credit counseling. Other
creditors might see this as an opportunity to put you into another
type of loan that will meet your budget. Let me see if I can give
you some information to help ease your frustration and help you
make the best decision about your current debt situation.
First of all, the best credit-counseling agencies
charge little or nothing to help you work out a budget that will
allow you to make your payments. Second, if you can't make the new
payment and you do decide to enter a debt-management plan, your
interest rates will be reduced, and you will end up spending less
to repay your debt even with the minimal monthly fee paid to the
You are correct that the new bankruptcy law will make
it more difficult for families that make more than median income
in their states to have most of their debts erased through bankruptcy.
You are also correct in shying away from bankruptcy. It should be
the last resort in working to solve financial problems.
Whatever you decide to do, the message to all of my
readers is this: Begin to plan now to live more in line with the
actual money coming into your household each month. As you use credit
cards in the future, make sure you have a plan to pay the balances
in full, in a reasonable time, before you make a purchase.
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.