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How do interest and minimum payments affect credit card debt?

If you are struggling with credit card debt in central Oregon, understanding how the interest rates and minimum payments affect the amount you owe can help you to determine the best way to pay it off. The Credit Card Accountability Responsibility and Disclosure Act of 2009, or CARD act, was passed to protect you from unfair practices from the credit card company, but the interest rate on your credit card can still be raised in two ways.

If the credit card company is going to raise the rates on new purchases, it is required to let you know beforehand. Forty-five days before the new rate goes into effect, you can cancel the card. If you do not cancel it, you are accepting the new rate. The other way that your interest rate can be raised is in the event of two consecutive missed payments. If a payment is 60 days late, the company can raise the rates on the balance already on the card, but they are required to provide information about the rate increase.

The minimum payment on a credit card debt is not the same from card to card, and it is critical for you to evaluate how the interest rate and the minimum payment will affect how quickly the balance is paid off. For example, if the minimum payment is 3 percent and the interest rate is 13 percent, only about $10 of your $15 payment will be going toward the principle. If the rate is raised to 19 percent after two late payments, the amount accruing interest has risen as well as the interest rate, and even less of your payment will go toward the principle. On a $500 purchase, nearly half of your minimum payment could be going toward interest instead of being applied to the balance.

Credit card debts with higher interest rates and low minimum payments often take years to pay off. Even though the company may not raise the interest rate after one delinquent payment, it can still affect your credit score. While this information can help you to become more aware of the impact interest and minimum payments can have on your debt and credit score, it should not be taken as legal advice.

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