By Lindsay Tice,Staff Writer

Sheri Wagg has racked up about $8,000 on two credit cards flying from Montana, where her husband is stationed, to visit her family in Auburn.

Wagg, 22, believes larger payments cut her debt faster, so she tries to pay a little more than the minimum when the bills come each month.

But soon, her minimum payments may not be so mini. Federal regulators have told banks to increase their basic charges so consumers pay off their debt within a reasonable time.

For some credit card holders, monthly bills will double.

“If it doubled at this point I think I’d be in a bit of a bind,” said Wagg. “It’s not good. People probably won’t even be able to pay the minimum any more.”

Federal bank regulators made the change in 2003, requiring minimum payments to include all fees, interest and at least 1 percent of the principal. Some banks changed their credit card bills in 2005. Others are doing it now.

On average, consumers were paying about two percent of their balance with each minimum payment, often barely covering interest. Now, they’ll pay about four percent of their balance.

The change will allow consumers to pay off their debt faster. A $2,000 charge could take 30 years to pay off under the old system. It will take 10 years to pay off under the new regulations.

But experts and some consumers say there will be a lot of suffering now for that payoff later on.

“We as Americans got into debt because of those easy credit terms,” said Russell Graves, executive director of the Maine-licensed Consumer Credit and Budget Counseling. “Now the bill’s coming due.”

Drastically affected

The requirements affect only credit cards issued by banks. Charge cards issued by stores, such as Sears and J.C Penny’s, will be affected if they are affiliated with a bank.

The new requirements have nothing to do with recent changes in bankruptcy laws.

Well over 40 percent of consumers carry their credit card balances over from one month to the next, believes Lloyd P. LaFountain III, head of Maine’s Bureau of Financial Institutions. For many, the higher credit card bills will soon arrive in the mailbox alongside large heating oil bills, higher gasoline bills and new bills from Christmas.

“It comes at sort of a crunch time,” LaFountain said.

He and other experts believe consumers will be pinched by the higher payments. Justin Dobson, counseling director at Consumer Credit Counseling Services in South Portland, said some people will be affected “drastically.”

For example, a $5,000 credit card bill may have only required a $100 minimum payment last year. Under the new policy, that payment would jump to $200. For a family that could barely afford the old minimum, an extra $100 a month is going to be hard to come by.

“What they have to do is start planning, start planning for higher payments,” he said.

Some consumers are angry about the change, even if it doesn’t affect them directly.

Shanon Gogan of Lewiston said she has family members who rely on credit cards to supplement meager incomes.

“If it (the minimum payment) doubles, they’re not going to be able to do it,” said Gogan, 19.

She believes banks, which issue credit cards, will benefit from higher minimum payments because they’ll get their money faster. But, she said, “They should think about the people’s needs as well.”

Alta Flores of Oxford doesn’t like the thought of higher minimums, either. If her minimums double, one card will go from $20 a month to $40 a month overnight.

“What if I can’t pay the minimum? Then I’m late,” she said.

Most cards add on fees for late payment.

In the long run

But while many experts and consumers agree there will be pain in the beginning, many say it will be worth it. A bill that once took decades to pay off may now take seven to 10 years.

“The thinking behind it is a good one,” said Nick Jacobs, spokesman for the National Foundation for Credit Counseling.

The average household has seven or eight credit cards and is $9,000 in debt, he said. He believes the new rules will help get those households out of debt within a reasonable amount of time.

If consumers can’t pay the new minimum, he recommends they call the credit card company to work out a lower interest rate. In some cases, he said, credit card companies can allow people to pay less than four percent of their balance.

“Every circumstance is unique,” Jacobs said.

He and other experts also recommend consumers call a licensed credit counselor if the situation is so serious they can’t resolve it themselves. Credit counseling does impact credit scores, experts said, but counselors can often head off a situation moving toward bankruptcy.

Bankruptcy also is an option. But experts agree it should be a last resort.

The one thing consumers should not do? Ignore the bills and hope they’ll just go away.

“There’s no shame in finding yourself in a lot of debt. We’ve all been there,” Jacobs said. “The only shame is when you do nothing about it.”

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