For many years, the major credit card companies have allowed their customers to pay as little as 2% of their outstanding balance each month. This payment, while minimal, has actually allowed the credit card companies to reap record profits, mostly because of high interest rates. While interest rates on home loans have lately been in the neighborhood of six percent, the interest rates on credit cards sometimes reach as much as thirty percent per year!

The customer may not be paying much on the principal, but if they fail to pay that principal, the interest accrues quite quickly. In fact, it can take more than nine years to pay off a simple $1000 balance if the cardholder only makes the minimum payment each month at an interest rate of 20%.

Obviously, it is not in the best interests of any cardholder to make only the minimum payment each month. Many Americans can't afford to pay more, as the average credit card debt in a U.S. household is now approaching $10,000. On such a debt, the minimum payment would be $200, and for many, that is all they can afford to pay. At this rate, someone who holds the average amount of debt would probably need their grandchildren to finish paying it off for them; it could literally take generations to pay off that bill at 2% per month. That is about to change.

A recent change in Federal law requires the major credit card companies to increase their minimum monthly payment. The law was passed some two years ago, but the lenders were given a grace period to allow them to comply. Soon, several major credit card companies will begin charging a monthly minimum of 4%. This may not seem like much, but for those with large balances, a doubling of the minimum payment could be devastating.

A $200 monthly payment for someone with a $10,000 balance will now become $400, and for many Americans, that increase could drive them to file for bankruptcy. Should you find yourself with a large balance and a minimum payment that may be hard to pay, what can you do?

Without preaching, a little bit of common sense should be applied in this situation. Cardholders with such problems should, first and foremost, stop using their credit cards. Adding debt to a debt problem is not good. The next step would be to try to cut some household expenses to raise money to meet the new obligation. Buying lunch at work? Can you take a sack lunch instead? Can you consolidate your debt with a home equity line of credit? Try calling your bank and see if you can negotiate a better interest rate or a more favorable repayment schedule. It's not likely to work, but it's worth a try.

There are numerous solutions available to anyone with problem debt, but this fact is obvious - once the minimum payment goes up, it will not come down again. The credit card companies, by increasing the minimum payment, are trying to avoid situations where debtors cannot pay their monthly bills. The 4% rate will allow most cardholders to pay their bills sooner, and will probably cause fewer customers to default on their payments. That should benefit everyone.

About the Author: Talbert Williams offers debt consolidation referrals and advice. For more information, articles, news, tools and valuable resources on debt solutions, visit this site: http://www.1debtfreedom.com

Source: www.isnare.com