Executives at Debt Shield, Inc., a Maryland-based debt settlement firm, said that the increased minimum monthly payments on credit card balances will most likely not double, as it is widely reported, but that the increase might push financially struggling cardholders into bankruptcy or bankruptcy alternatives, like debt settlement.
While credit industry experts and the media claim that credit card companies are doubling their minimum monthly payments from 2% of the outstanding balance to 4%, the actual minimum payment increase is more complicated and less drastic for most cardholders, explains Mark Baylis, President of Debt Shield. The new rules require credit card banks to set their minimum payments to cover all interest and fees plus 1% of the outstanding balance, which will result in significant increases for high-interest accounts.
Baylis said that a cardholder with $10,000 on a credit card at 18% Annual Percentage Rate (1.5% monthly) pays $200 under the 2% minimum requirement. Out of that $200 payment, $150 (1.5%) goes towards interest and only $50 (0.5%) goes towards the outstanding balance. Under the new rule, the minimum payment will increase so that the...
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