Credit and debit cards: You would be criticized by the new minimum payment?

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The Federal Government has been pressuring credit card companies such as MBNA, CitiBank and Bank of America to double the minimum payment they will accept from cardholders each month.

This means that if your minimum monthly payment was calculated last year at the rate of 2% per month, it may soon become 4%. However, it's hard to tell when you will actually see this increase, as the various credit providers are upping their minimum payments at different times over the coming year. This means you won't know for sure about any increase until it shows up on your monthly statement.

What will this do in terms of you actual monthly payment? If you have a credit card where the minimum monthly payment last year was $200, it could easily go to $400 a month sometime this year. Worse yet, if you have balances owed on several different cards, you could get slammed for an extra $300 or even $500 or more per month!

What's the good news?

The good news is that doubling the amount you must pay each month reduces the time that will be required to pay off that credit card debt, and the amount of money it will take to pay it off.

For example, suppose you have a credit card with an interest rate of 12% and a monthly minimum payment of 2%. In this case, it will take you 368 months to pay off your credit card debt – or about 30 and one-half years!

Now, take this same credit card with the same interest rate, but double the minimum monthly payment to 4%, and what happens? You reduce the number of months required to pay off that $10,000 in credit card debt to 151 months or about 12.5 years.

Of course, you don't want to make just the minimum monthly payment every month, month after month if you can possibly avoid it. Here's an example of what I mean. Suppose you charge a $6,000 cruise and never make more than the monthly minimum payment of $400 (4%). If the card you put it on carries an interest rate of 12%, it will take 134 months to pay off that cruise – or long after all those golden cruise memories have faded.

So, if your credit card provider does double your monthly minimum payment this year, it may hurt a lot in the short run. But in the long run, it will save you money and help you.