Control credit card debt in 2006

Americans are headed into the New Year battling high gas prices and mounting receipts from the holidays, among other expenses. Now, to add to their woes, millions of credit card holders are looking at significant increases to their minimum monthly payments. For the next few months, minimum payments could as much as double until their credit card balances are reduced.

MBNA, Citibank, Discover, Capital One and Bank of America have announced they will implement the January 2003 guidelines issued by the Federal Reserve that require the monthly payment increase.

Credit card holders are now required to pay amounts that could easily equal 4 percent of their total balance each month, while only 2 to 2.5 percent was standard in the past. More banks are expected to follow suit.

“In the past, the consumer may only have been required to pay the periodic interest, and possibly less in some cases,” said Mike Sullivan, director of education for Take Charge America, a nonprofit credit counseling company.

The new schedule requires card holders to pay more.

Many card holders will take a financial hit in the short run and therefore must set new long-term goals, Sullivan said.

“If you’ve only been paying the minimum balance on your credit card, it might be a struggle to come up with extra cash each month,” Sullivan said. “Just keep in mind, you’ll be making those payments for a drastically shorter time period and potentially saving thousands of dollars in the long run.”

The credit card industry says average household consumer debt in the United States is about $9,000, excluding mortgages. Many Americans are living paycheck to paycheck and fear the added payment could be the final straw that pushes them into financial ruin.

Sullivan offered these suggestions to prevent that from happening:

•Make a budget and stick to it. A big shoe sale is not a reason to stray from the plan. Write the budget down and check it frequently.

•Visit a credit counselor. If you are positive you can’t make your minimum monthly payments, creditors have special programs that may be able to reduce monthly payments.

•Move your payment due date to several days after you receive your paycheck. This ensures you will have the money to make the payment, as well as less time to spend your money on other items.

•Don’t apply for more credit cards. If you are struggling to meet the monthly payments for the cards you have now, it’s almost certain you won’t be able to afford yet another monthly payment.

•Use your income tax refund to pay credit card debt. Don’t wait to file your W2. The sooner you file it, the sooner you’ll receive a refund. Paying off a large chunk of your balance will reduce the amount of your monthly payments.

•Use your savings to pay credit card debt. If you have $100 in a savings account at 3 percent interest, you will earn a little more than $3 in one year. If the savings is used to pay off $100 on an 18 percent card, you will save $18, six times the interest you would have earned in your account.

•Cut down on food and entertainment expenses. Wait for movies to come out on DVD rather than shelling out $20 for two tickets. And, despite what java junkies say, Starbucks is not a daily necessity. A $3 drink each day amounts to $100 a month.