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2007-09-06 02:18:38

Stop Paying the Minimum on Your Credit Card Deal

Consumer credit card debt has been a weak point in the financial industry of the USA, bringing more disadvantages than benefits to both the sides - cardholders and credit card lenders. While many credit consumers do not really mind living in debt, paying only the monthly minimum on their credit card deal, the US Treasury Department has made a point of eradicating the so-called unfair credit card practices aimed at keeping you in constant debt.

What is so unfair about credit card practices? At first sight it may seem to you - what is so bad about the minimum monthly credit card payment? Why is it bad that I can make small payments each month without any notable loses to my budget?   

But if you give the matter a little more thought, it will come to you that paying only the minimum - and even this task is sometimes not fulfilled - keeps you in an everlasting credit card debt. And your credit company provides for that, collecting small amounts for much longer period of time and so making greater revenues.

As to credit consumers themselves, they are so content with the minimum monthly payment requirement, that they are lazy to calculate the ultimate cost of their credit card offer after they finally pay off the balance.  And it's enormous!

That's where the injustice is hidden and you may really reduce the period of debt repayment and the overall credit card cost by simply paying more than the monthly minimum.

To bring this theory into life, some of the largest credit card companies have submitted to the new regulation introduced by the Treasury Department and have already raised monthly minimum payments.

So, if you haven't yet experienced the new regulation on your credit card deal, be sure it's only a matter of time. And next time you receive your credit card statement, do not be shocked to discover that your monthly payment has doubled. 

In case you are a customer of Citibank, Discover or Bank of America, you must already have been paying double. It's natural that you maybe upset under the circumstances as it appears that your credit is no free money at all - that's exactly the way lots of irresponsible credit consumers think!

You definitely start to feel the difference, especially if you own an expensive by itself rewards credit card or one of affinity credit card products. But what difference would you feel at the end paying your balances off? Well, if you initially were supposed to repay your balance in 18-19 years for example, then with the new minimum payments you will finish in 7 years with double less the interest.

Why does the overall interest rate go down if your creditor has just doubled it? It happens because the period of the repayment plan decreases and, consequently, the interest is applied to fewer months.

That's one of the good sides of the new regulation. The other is that higher interest rates will make you reconsider your spending habits and credit management ways, teaching you discipline. It doesn't mean though that irresponsible cardholders will change their principles at once but they should remember that delaying the new minimum payments or, worse, skipping them, will raise the interest even more causing completely unmanageable debt.

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