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You May Owe More Money Soon

Here's a new development in the credit card world that many may see as a bad thing: Some card issuers, such as Bank of America (NYSE: BAC  ) and Wachovia (NYSE: WB  ) , are hiking the minimum monthly payments they charge their customers. The increases are generally from 2% to 4%. Those might not look like big numbers, but consider that:

  • It's essentially a doubling of the amount owed. If you normally owe $100, you'll suddenly owe $200.

  • If, like a typical household that carries revolving credit card debt, you owe $8,000, a 2% minimum means $160, and a 4% one means $320. If you're paying around $300 per month, that's about $3,600 annually -- not an insignificant sum. There are plenty of people who owe (gasp!) $25,000 -- for them, the monthly minimum will rise from $500 to $1,000. Scary stuff!

So it's bad, right? Shame on card-issuers such as MBNA (NYSE: KRB  ) , J. P. Morgan Chase (NYSE: JPM  ) , American Express (NYSE: AXP  ) , Capital One Financial (NYSE: COF  ) , and Citigroup (NYSE: C  ) for slapping you with minimum required payments? No, not at all.

Ideally, we should all be paying off our credit card bills in full when they arrive. But this isn't a perfect world. Instead, many people fall into credit card debt, often lured by what seems like free money. Once you find yourself in such debt, it's incredibly easy for it to get out of control.

It is possible to dig yourself out of debt, though. Many folks have done so, often paying off tens of thousands in debt. Read their inspiring stories on our Consumer Credit / Credit Cards discussion board. And understand that the way to do it is to pay as much as you can, saving aggressively and paying more than the minimum. Given that, requiring people to pay higher minimum amounts may actually help. So kudos, card industry!

Learn much more about the credit card industry and how to manage debt effectively in our Credit Center.

LongtimeFoolcontributor Selena Maranjian does not own shares of any companies mentioned in this article.


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Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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