Question:

Our minimum payments on our credit card debt accounts are eating into our weekly spending money.

I want to add more to the account charging us the highest interest rate but don’t know if we can bring all our debt up to the minimum amount if we do this. If we pay a substantial amount which doesn’t meet the minimums, is there a penalty?

Answer:

Unfortunately when a statement has a minimum payment, it means this amount is the creditors lowest acceptable amount to keep the account current and in good standings. You must send the minimum to avoid being hit with fees and possible higher minimums next month.

The creditors don’t like dead-beats appearing to be not servicing their debt. Any payment below their minimum is considered a late payment.

I view the bankruptcy rule changes of late 2005 as the banking industries anticipating their possible losses associated with these new minimum requirement changes.

Congress had set this new rule a couple of years ago and the latest possible date for enactment was the end of 2005. Many of the companies have already raised their higher minimums many months ago.

When you don’t make the minimum payment on the debt, as required by your account agreement, your credit score will be affected. This could possibly trigger this creditor and other creditors moving your rates up to what they term the penalty rate.

It’s buried in the fine print of your credit card agreement. It says that if you’re more than thirty days late on any debt payment to anyone, you’re subject to an interest rate increase. This new rate will be equal to the highest rate allowed by law in the state the card is issued.

According to a February 8, 2006 Bankrate.com’s survey of credit card issuers, these rates stretch as high as thirty-one percent. Because you didn’t pay the minimum amount owed, you are considered a high risk borrower and are charged the highest high risk rate.

Doesn’t mean it will happen, but if they check your score it will. Some will assess as high as a thirty-five dollar late fee compounding your situation.

It sounds as if you’re thinking about getting these debts off your back. To achieve that goal, you might consider leaving the cards at home and moving yourself back to a CASH system. Most people find after doing this that they spend somewhere between fourteen and twenty-five percent less almost immediately.

When we use greenbacks like we did when we were children, we realize each and every penny that we spend. And we realize there is a finite (limited) supply of that form of money.

When we use PLASTIC (credit and debit) it seems to represent an infinite (unlimited) supply, so we tend to spend more.

Several years ago the National Restaurant Association conducted a study that found the average patrons dining experience cost a little over thirty-five percent more when the customer paid with a credit card vs. paying with cash. If it’s true with restaurants, it’s true at other retail outlets.

Other places to look for extra money to pay down debt include eliminating or decreasing those cups of coffee you’re not thinking about, new clothing purchases and even looking at the phone bills and maybe cutting back on cable television.

The biggest one of all is stop eating out. A temporary second job may be worth looking at, too.

The worst possible thing to do would be to take a line of credit or re-finance on your home. This is simply moving the debt and not addressing the issue. Remember credit card and consumer debt is UN-secured debt.

Your home is secured with the lien called a mortgage. Should a catastrophe happen right now and you stop paying altogether on the cards, the worst that happens is your credit rating falls.

You’ll look like a sap. But you’ll only look that way to you. Nobody else knows what your score looks like, and nobody except you cares. This is the mind game the lenders are playing on us. If you’re in trouble and can’t pay, they’ll yell and scream but if you can’t pay, you can’t pay.

Once you fess up, and say goodbye to the credit card game, they’ll work with you. No matter what minimums you can pay at that point, once they’ve discovered your broke, it won’t be pleasant, but they’ll tend to work with you.

If over time, you keep refinancing your card addiction by taking the equity out of your house and the emergency causes you to stop paying, the lien holder will take your house. You kept moving UN-secured debt onto secured debt.

All the BEST … Good Luck

Identifying other little principles to follow as in this article are found inside the book No Balance Due by Lenny Tumbarello. It’s available at bookstores and most internet bookstores such as Amazon.