California Injury Attorney Blog

It's time to pay the piper.

The first credit card bills from Christmas are beginning to roll in. For some people, it will be a shock.

But instead of panicking, use this year's first credit card bills to diagnose your debt and choose your best option for paying it off says California Business Attorney Steven C. peck.

You'll get some help from the second set of provisions that take effect Feb. 22 as part of the landmark Credit Card Accountability Responsibility and Disclosure Act of 2009 indicates California Business lawyer Steven C. Peck.

The federal law includes restrictions on over-the-limit fees, the marketing of credit cards to adults younger than 21 and dramatic changes in how issuers can impose interest rate increases states Los Angelels Business Attorney Peck..

A key provision that takes effect next month will change credit card statements significantly by requiring issuers to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened.

Pay attention to one key feature: Statements now will include details warning consumers about the high costs of making only the minimum payment.

"It's a good thing to show people that paying just the minimum payment due has consequences," said Nick Bourke, project manager of the Pew Safe Credit Cards Project, which aims to identify industry trends and help policymakers protect consumers. "People can really have a clearer understanding of what it costs to use credit card debt that they will pay over time."

All of a sudden that $1,000 TV will look like it costs $2,000 - and it will, if you make only minimum payments as the interest piles up.

Here's an example from Consumer Credit Counseling Service:

If you had a $1,000 credit card balance at a 17 percent annual percentage rate and you made just the $15 minimum monthly payment, it would take a little more than 17 years to pay off the card. And the total payback, including principal and interest, would be $3,082.

But if you paid just $5 more, or $20 a month, it would take seven years and four months to pay off the card at a total cost of $1,750.

That's a savings of $1,332 and 10 years.

To further help cardholders chart their way out of debt, the credit card law requires statements to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.

Here's a rule of thumb If you can make your minimum payment, plus 20 percent of that minimum each month, you can probably pay off your debt in three to five years without outside help.

The key is that you must make a dent in the principal, not just pay enough to make the interest payment.

"If you can't pay back your credit cards in three years or less, you probably need to get outside help," said Detweiler, co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. "It's going to be hard to stick with a payment plan longer than three years. Life happens, the car breaks down, the kids need braces, the house needs repairs."

If you're having trouble paying your credit card bills or anticipate having difficulty, get help now.

"A lot of times we wait too long to get help with our debt," said Detweiler, credit adviser for Credit.com. "The longer you wait, the fewer options you have."