Credit card minimum payments are doubling this January (those rumors you heard are true). The largest creditors, including Citibank and MBNA, have already announced that their minimum payments are increasing from 2% to 4% of the borrower’s credit balance each month. Other credit card issuers may have different increases but most are expected to double their existing minimums in the next few weeks.
If you carry large balances on your credit cards (the average balance is a whopping $8,400), you may be surprised to see how much you have to pay each month. As we discussed earlier on CreditBloggers, this higher minimum payment is a good thing in the long run. However, that doesn’t mean that higher payments won’t hurt a bit in the short term.
If you are worried about being able to afford your credit card payments when they double, here are somethings you can do to prepare:
- Calculate your new minimums – It is easy and dangerous to ignore these upcoming changes during the holiday season. The single best thing you can do to prepare is to review your accounts and calculate your increases in advance. Look at what you are paying now and double it to see what may happen with your next credit card statement. Knowing the problem is half the battle.
- Start saving now – If you know that making your payments is going to be a stretch, do your best to save up a little money now. Save your Christmas bonus instead of spending it, don’t go overboard with your after-Christmas sale shopping and put any cash gifts into the bank.
- Stop using your cards – Since your minimum payments are usually calculated as a percentage of your balance, it makes sense to stop adding new charges to your credit cards now. The holidays are the high season for credit card spending so it may be difficult to resist.
- Move your payment date - Request that your credit card payment due dates are moved to immediately after your payday. This will help you make paying your credit card bills a priority over other spending.
- Rework your budget - Consider shutting off your cable subscription or packing a lunch to work everyday as ways to reduce your monthly spending and free up more money for your credit card minimums. These little spending cuts can result in huge savings.
- Contact your creditors - If you are positive that you will not be able to afford your increased minimum payments, contact your credit card companies right away. Most major creditors have special programs set up to help people who are having a hard time paying back their debts. They may be able to reduce your monthly payments.
You may also want to consider consolidating your debts, but this process takes time and you will still need to make all your minimum payments for at least a few months. The best plan is to pay off all your credit card debts as quickly as possible so that you can be debt-free before the end of 2006.
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