Many credit card issuers are boosting the minimum payment due on monthly bills, responding to a new federal requirement aimed at quickening the pace that consumers pay off credit-card debt.
The primary bank regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., said monthly minimum card payments as low as 2 percent allowed consumer debt to snowball out of control.
A $10,000 balance at 18 percent would take 58 years to pay off and cost $28,930.64 in interest at the current 2 percent minimum payment rate, according to the Consumer Action League. At 4 percent, it would take 15 years to pay off and cost $5,915.67 in interest, a savings of $23,000.

The new rule takes effect Jan. 1, although some issuers are already implementing it. Consumer advocates say the timing of the change is bad, since the new bankruptcy law that took effect Monday will make it tougher for consumers to wipe out debts, including credit cards.

"No one could imagine that all of these things would line up at exactly the same time," said Bradford G. Stroh, chief executive of Freedom Financial Network, a debt-counseling firm in California. "But they are all hitting the American consumer in the fourth quarter of 2005."

It also comes two weeks after the Federal Reserve reported that credit-card delinquencies in the second quarter hit a record of 4.81 percent.

John Danafer, president of TrueCredit, a California-based credit management firm, says the new rules could save consumers thousands of dollars by slashing the amount of time it takes to pay off a card debt. "But I'm concerned how it will impact people on shaky finances," he said.

Ted Stuckenschneider, a Birmingham bankruptcy lawyer, said the Federal Reserve's interest rates already are taking a bite out of people's paychecks. Interest payments on home equity credit lines are moving higher, and higher credit card payments will place more of a financial burden on consumers, he said.

"Families with three and four credit cards could easily see their monthly payments rise $200 a month per card," Stuckenschneider said. "With people already dealing with high gasoline prices and high heating bills this winter, it could drive more people over the edge into bankruptcy."

Credit as a safety net:

Last week, New York-based consumer action group Demos and the Center for Responsible Lending released findings from a new report, "The Plastic Safety Net: The Reality of Household Debt in America."

The survey results found that 7 out of 10 low- and middle-income families are using their credit cards as a safety net, relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.

Households that reported a recent job loss or unemployment, and those without health insurance, were almost twice as likely to use credit cards for basic living expenses.

The average household credit card balance is $9,205, according to credit research firm Cardweb.com, up from $8,940 in 2002.

About 42 percent of all the U.S.' 180 million credit card holders pay off their balances in full each month, 33 percent always pay more than the minimum and 15 percent don't use cards, according to a survey this summer by the American Bankers Association.

It's the remaining 10 percent that consumer advocates are worried about, especially the roughly 4 percent, or 7 million people, who always pay just the minimum. This group is considered to be at a higher risk for filing bankruptcy.

Click here to go to Freedom Debt Relief's website