Friends: Last September, I posted an article about this upcoming potential crisis. If you'd like, you can read it here: http://community.adlandpro.com/forumShowPost.aspx?PostID=143292 Today I found this article, from bankrate.com: ============================================ By Melody Warnick • Bankrate.com Good news: Credit card companies are increasing their minimum payments. Bad news: Credit card companies are increasing their minimum payments. Huh? Recently, MBNA, Citibank, and Bank of America have announced they are increasing minimum monthly payments on credit card balances and others are expected to follow suit in the near future. Currently minimum payments are typically about 2 percent of your balance and eventually are expected to go up to about 4 percent. 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-percent minimum each month, your debt would probably last longer than most marriages. Hiking 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 increased minimum month after month, it could put you and many other debtors in over your head. Cause for change Over the past few years, low minimum payback rates of between 2 and 2.5 percent 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 percent of cardholders that 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 hike up 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-percent 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-percent 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 percent out of their budget. Here are some ways to get started: Pay less to Uncle Sam. In 2004, 80 percent 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 percent 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. 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." Melody Warnick is a freelance writer based in Iowa. ============================================ Hope this helps you plan! Cheri

Hi Cheri. I hope all of Adland reads this post, as I view Credit Cards as the greatest detriment to people retiring in dignity (even greater than the fact that fewer than 5% are saving enough) I don't even care if the companies are reading this and black list me. Credit is too easy these days, and I've seen personally how it can ruin lives. The article talks about paying the minimum (which many people do) and how the debt can last as long (or longer) than some marriages. I ask people to take particular note at the cost of that $2000 dollar credit card purchase and only paying the minimum, it takes 30 YEARS to pay off the debt and youpay $5000 in the end! Now how many credit card holders have only $2000 in charges? I saw people with over $12,000 I can't even do the math on that one! (someone hand me a calculator ;-)) Now I was in the business (at that time) to help people get out of debt, but I believe now I was only providing half the solution. We found ways to refinance, save money in other areas of overspending, and help them pay off debt quickly and start saving for retirement. Fact is we should also have had some sort of decent vehicle to help families MAKE more money. I likely would still be in the business! Isn't that part of the problem these days? People just aren't making enough? and with prices continunally going through the roof they seem to be going backwards financially more than forwards. One step forward two steps back.

Thanks for sharing that. I'm sure a lot of paople will need the information.

Hello, Cheri! For me, Credit Cards are an evil trap and when I paid off the one and only credit card I had, I tossed it in the shredder. The higher minimums may help some people be more careful in their spending habits, but I fear that it will just make the problem even worse for those in the financial whirlwind. What people really need to realize is that they do not need every new little gadget or piece of clothing or whatever that comes out. The kids to not need the fancy $160 shoes, designer clothes and X-boxes. This current trend of consumerism needs to stop. Kate

Tim, Your post gave me a great opening, thanks! ;-) One of the companies I represent...in fact my main opportunity at this time...does exactly what you suggest. It's where I received some of my more recent information on managing family finances. I, too, used to think that refinancing was the answer. In fact, I was a serial refinancer (my term, lol). But if you look at the way mortgage financing works, this is only a good idea as a last resort. In the first place, for the first 10 years of a 30 year loan, nearly 90% of your payments are interest. When you refinance, you start that over at nearly 100%, and flush all the time and money you've spent getting to the pay-down. If you can make your minimum payments now, there's a better way. (I'm using 'your' in the generic sense, Tim, not speaking of you personally.) Add to that the fact that most people are right back in the same boat two years later, and it becomes clear that the answer is education, some sort of system to help people track and manage their spending, and YES, providing a vehicle to make more money. The company I represent, ATI, does all of those things. First they showed me that refinancing was as much a trap as credit card debt in the first place. They showed me a better way, and gave me tools to accomplish it. That resulted in our being able to reduce our consumer debt by more than 80% in just two years. Finally, it provides a very fair and balanced income opportunity for those who choose to use it. For those who don't, there's a customer-only option that is priced very competitively to other debt-elimination programs. End of commercial. ;-) Cheri PS, I haven't done the math on $12000, but we usually use $5000 at 18%. Paying the current minium on that takes 46 years to pay off...half again longer than your mortgage.