Credit Card Costs Are Going Up 

Many credit card users will have to pay more to use credit cards this year.  The federal government is requiring that people make higher minimum payments on the money they owe on credit cards. 

The new rules for using credit cards went into effect on the first day of 2006.

The rules affect some people more than others. People who owe large amounts of money on their credit card balances pay much more each month if they only pay the minimum.

People who do not have extra money to pay their bills in full also may have trouble under the new rules.

Credit cards allow people to buy things without paying cash.  Card users receive a bill each month for the amount charged to the credit card.

Many people pay off the entire amount each month. However, between seven percent and 14 percent of credit card users pay only the least amount required each month.  They then carry the remainder of the bill to the next month and beyond. 

Each time the bill carries over into the next month, the credit card company adds an interest charge onto the bill

Less than half pay off their balances

The American Bankers Association says less than half of the people who use credit cards pay off their entire balance each month. The average household in the United States has about $9,000 in debt on credit cards.

The new rules affect people who carry balances the longest and who pay the least. 

In the past, credit card users had to pay at least two percent of the debt on their cards. Now the rules require people to pay enough to cover the interest and at least one percent of the principal. The principal is the amount of the purchase charged before adding on the interest.

The new rules make people pay off their debts faster.  The new rules are to help people save money owed on credit and the added interest. 

New rules help people pay debt faster

Nick Jacobs is a representative for the National Foundation for Credit Counseling. He says the main reason for the new rules is to help people get out of debt faster. He also says that is a good thing.

Jacobs says if a person has a $1,000 balance and pays $15 each month, the balance takes 17 years to be re-paid. During that time, the person also pays $3,000 in interest.

However, if the person pays $20 each month, it takes only seven years to pay back the whole amount. The interest costs are only $1,750.

People with credit card debt can learn to deal with the new rules by trying harder to manage their spending. They can do so by keeping track of their daily, weekly and monthly spending.

The easiest way to track spending is by setting up a budget. 

A budget starts with the total amount of income expected each month.  By subtracting the amounts needed monthly for such items as rent, telephone, heat, water, food, and other necessary expenses, the difference is the amount available for extras, like entertainment. 

The people who live within their budget keep expenses below their income and put some of the difference into savings.

People following a budget use credit cards with caution.