Minimum payments won't cut debt on 16 cards


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Question Dear Credit Smart,
Hello. I have about $26,500 worth of credit card debt (16 credit cards total) that I am only able to pay the minimum on. Right now I am current on all my bills, but the balances don't seem to be going down. I was wondering would it be best for me to not pay a couple of the cards and put that amount to a few of the other cards to get them paid off and then use those minimum payments to work on paying down the others. Or should I file for bankruptcy? Thank you in advance for your opinion. – Gianna


Dear Gianna,
I understand how frustrating it is to make payments every month and not see your balances go down. This is, as you know, mainly because you are only able to make the minimum payments. Your statements on these 16 cards spell that out very clearly. 

It proved to be a real wake-up call to consumers when the credit cards companies were required to add that little box on their statements showing how long it will take to pay off the card when paying only the minimums. Sometimes the creditor will also add a line to show how much sooner you can pay off your debt if you increase the payment by a certain amount.

While this is valuable information, consumers who are already strapped to make just the minimums find it very difficult – if not impossible – to increase the amount they can send each month in order to see those balances go down. That’s when the idea of not paying some creditors in order to pay more to others starts sounding like a real plan. I do not suggest you do that. This could result in more problems than it solves, including damage to your credit reports and collection calls from those creditors you are not paying. It is also often the time that the idea of bankruptcy seems to be the only way out. Bankruptcy does exist in this country for very good reasons, but you would need to consult an attorney about those options.

I would suggest a third alternative, one that I believe you should pursue before you do anything else. Contact a certified nonprofit credit counseling agency and talk with a credit counselor about your situation. Tell the counselor what you told me. A good counselor should listen to your financial concerns and then go over your monthly income and expenses to determine exactly where you stand. After that, your counselor will be able to develop and present options and strategies to help you address your situation. This initial consultation will be free.

The counselor may suggest a debt management plan as one way to address your debt. DMPs, as they are known, are agreements that credit counseling agencies have with most creditors that allow these agencies to reduce the interest rate you are paying on your cards. This reduction often results in a lower minimum payment, which would certainly help you in your situation. Past due and over limit fees are also usually waived once you are enrolled on a plan. Your creditors will receive a monthly payment and all of your accounts will be paid in full in five years or less. DMP services are not free; you may be subject to an enrollment fee and monthly fee. However, these fees are regulated by each state and are fairly minimal. Many agencies also have policies to waive or reduce fees depending on the situation. My recommendation for the best place to find an agency is to work with those affiliated with the National Foundation for Credit Counseling.

Remember to always use your credit smarts!

See related: 8 tips for picking a credit counselor

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Published: June 24, 2016

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Updated: 10-24-2016

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