The Credit Card Payment Increase

Is it pushing people into bankruptcy?

While I believe that the new credit card payment guidelines are a step forward in getting consumer debt under control, I wonder if it isn't too little, too late.

For years credit card companies have bombarded consumers with introductory offers, balance transfer specials, and numerous other "helpful" credit options. They have made it easier and easier for the sub-prime borrower to acquire credit. Keeping minimum payments low, made credit advances achievable to many families who in previous years would have no chance of acquiring substantial credit limits.

In effect, they have misled many consumers into believing they had the financial means to manage credit. Many in fact, did not actually have the means to pay off the high balances that these companies entrusted them with. Now, when consumer debt is out of control, the government and credit card companies "come to the rescue" with bankruptcy reform and new payment guidelines. While the new laws and new payment guidelines may be a great prevention tool for future debtors, it is doubtful that it will "rescue" current debtors who have gotten in way over their financial means. It may just be the last straw for many.

Approximately one year ago, after a couple failed attempts to manage my debt successfully, I had entered into a debt management program. Being one of those with little self discipline in regards to managing my debt, I finally gave in and asked for help. Thank goodness I did, in light of the new credit card payment increases. I would have never been able to financially handle the increases. I have eight creditors. I definitely would have had to file bankruptcy.

Consumers are being advised to call the banks and discuss terms with them if the payments are too high. I am curious how many have tried this? How cooperative are the banks really going to be? Are they going to offer a real solution or just a quick fix that could eventually leave the consumer in worse shape? Let me tell you my own experience when I called for "help"

Seven of my creditors are included in the management program, one I opted to exclude due to it causing an increase in payment. I had a great promotional interest on a good portion of the balance that remained for the life of the balance and this was keeping my payment (and interest) at a low level. The plan was to apply the funds currently going to the management program, once completed, to this card to eliminate the balance quickly. With the new payment increase I am now paying that card company the amount I would have been paying had I opted to include it in the program. My payment increase amounted to approx $100.

Not knowing where I would come up with an additional $100 on an already tight budget, I gave the bank a call. After discussing the situation with a few customer service representatives (an exhausting process of re-telling and re-telling my situation), as I was passed from one department to another, my conclusion was one that I am not very proud of. I did nothing!

First of all, several months back I had switched to a different type of account in order to avoid a change in terms that had increased my interest rate. Little did I know that this basically voided the fact that I had been a credit customer for the previous four years. When I inquired about help in reducing the payment back to manageable amount I had been paying, I was told that the account was less than a year old (the previous cards history did not count I was told) and I would not be able to enter into any type of management payment with them until February 2006.

O.K., not that far off. But, upon further discussion I learned that I would only be offered two short term arrangements (6 to 12 months each) during a period of five years. After those agreements were exhausted, there was no guarantee what the standing of my account would be. The account could even go to a default rate (which could equal a whopping 24% ) if not paid in full by the end of the agreement. In fact, they weren't willing to offer me any guarantees of anything during the whole process. Be careful when entering into an agreement with creditors. I was not offered much of this distressing information, I had to ask. Ask a lot of questions and try to get some idea what will happen when the agreement expires.

For even further discouragement, the customer representative informed me that my payment would not be significantly reduced. I realized then that I would accomplish nothing by entering into an agreement with them and could actually be hurting my situation in the future.

So, I did nothing and intend to do nothing to reduce the payment. Here's the plan, even though I'm a bit ashamed to admit it, and absolutely don't advise it. After much stressing out over the situation and trying to refine a budget that was not going to get any tighter. This extra $100 was just not going to fit in my budget! Talk about fitting a square peg into a round hole, it wasn't happening.

After much deliberation, and a lot of frustration, a peaceful feeling came over me as I suddenly realized that I could still use the $100 elsewhere in the budget. I know, I know, the first step in eliminating debt is to stop creating debt. Actually, I assured myself, I would not be creating new debt. I would simply be redirecting the extra payment that was not in the original plan to other budget expenses.

So now, instead of paying cash for gasoline expenses, $100 worth of our gasoline budget comes from this card. I have relieved the panic, although I feel extremely guilty in the process. It works however, to keep my budget and my debt elimination plan, on track. To me that is important. I refuse to let them throw me off course. And, as a bonus, when I do have a little extra money, I let the payment ride and that just gets me much closer to being debt free. If I could leave the payment "as is" would be ideal. It's just not an option for me right now.

So, I've solved my $100 budget dilemma. But, I am wondering how many families out there with 5, 6, 7 and 8 or more credit card balances are being pushed into bankruptcy. Some may be on self-help plans, managing the minimums, and using the roll down method to eliminate debt. These new payment guidelines are certain to push them into considering less desirable options. Some may even give up in frustration and just quit paying.

My advice is to contact a credit counselor to inquire if you qualify for a program before making any final decisions. If they cannot help you, they will advise you of other options. I highly recommend you choose a company that uses CareOne Credit Counseling.

I invite you to share your credit card payment increase story. Or, your experiences with your creditors during difficult times. Good and bad.