U.S. credit card issuers might be required to warn consumers that making only minimum monthly payments on credit card debt is financially dangerous. The sponsor of the legislation is Senator Dianne Feinstein, D-California.
The minimum payment is the minimum amount of money that has to be paid pay each billing period on an open balance. You can pay more than your minimum payment, but you can't pay less.
Over the past few years, low annual rates have encouraged Americans to get loans - and to accumulate an average credit debt of close to $10,000 per household.
A lot of U.S. credit card holders are not informed how making minimum payments affects their credit debt. It could take years to pay off their credit card balance in full. Let's admit it, if you pay only minimum each month, your debt will probably last longer than most marriages.
If you take $2,000 from a no fee credit card offering 18% APR and make no other purchases, it will take you about 30 years to repay it. The total amount of the interest paid will be $5,000. Can you imagine that? People get in a revolving debt cycle, so the government helps credit card holders to realize how the things are working.
The proposed "Credit Card Minimum Payment Notification Act" requires credit card issuers to list the additional information to a monthly credit card statement.
First of all, those people who make only minimum payments will be warned that such payments increase the total amount of the interest paid and the time needed to fulfill the balance.
Then, there will be a notice of the time and money that are required to pay off the debt in full under the terms and conditions of the credit card agreement. Moreover, credit card issuers will have to give a special toll-free number. You can call it when you want to find out how much time and money are needed to repay your credit card balance.
However, there are certain limitations when the legislation will not be applied. If the credit card terms require a minimum payment that is at least 10% of the credit card debt or you don't make any purchases during the billing cycle, credit card issuers will not have to fulfill the requirements.
Ms. Feinstein's legislation would revise the Truth in Lending Act, which main idea is that customers manage their credit cards wisely if they are fully informed about the cost of their credit.
Although the legislation is not a panacea for consumer debt, most financial analysts think it will help. If you are aware how long you will pay to cover your debt, you will want to get out of the debt quicker, right? If you pay more per month, you spend less time to cover your debt and pay less interest.