Credit card debt is different than other types of debt. There isn’t a repayment plan with a defined end-point. Instead, a person just has to pay the minimum payment each month. If a Long Island debtor wants to pay more, he or she can, but it isn’t mandatory. However, such flexibility can be damaging.
According to one source, as few as 25 percent of those people with credit cards pay off their entire balance each month, and many simply pay the minimum amount month after month. However, that can backfire, as research shows that minimum payments usually lead to extra expenses for the debtor — and extra profit for the lender, as it results in more interest payments going toward the lender.
The government has stepped in to try to educate consumers about credit card debt. For example, in 2003 regulators prohibited credit card companies from setting rates at levels so low that a person making the minimum payment would never be debt-free. Moreover, in 2009, a law was enacted that mandated that credit card companies include information on debtor’s credit card statements explaining how much time it would take to extinguish their credit card debt based on how much they put toward payments. In addition, the Card Act of 2009 made it so that credit card companies had to let debtors know how high their payments should be if they wish to have their debt paid off within three years.
These efforts may help debtors understand how paying more than the minimum payment can help them in the long-run. Unfortunately, some debtors, through no fault of their own, are unable to make even the minimum payments on their credit cards. This can cause credit card debt to spiral out-of-control. In these instances, it can behoove debtors to explore what means of debt relief might be available to them, including filing for bankruptcy.
Source: The Washington Post, “The psychological trick that makes it harder to pay off your credit cards,” Jeff Guo, Nov. 4, 2016
