With interest rates on the rise, large card issuers robustly profitable, 3 and card delinquency and charge-off rates at historic lows, 4 now is an opportune time to help the most vulnerable credit card holders deleverage. Today, many borrowers significantly underestimate how long it will take them to pay off their debit if they only pay the minimum, while disclosures that merely illustrate the savings from making larger payments have had little effect. Mandating higher minimum payment amounts could help overcome common behavioral and cognitive biases that prolong indebtedness. Under the formula prevailing in the U.S., cardholders need only pay 1 percent of the principal balance plus interest and fees to be deemed current on their accounts. ![]() Yet no national regulator has yet homed in on the core structural problem: low minimum payment amounts. Regulators in the U.S., U.K., Canada, and Australia have initiated enhanced disclosures, tinkered with choice architectures with respect to card repayment amounts, and experimented with automated repayment options that could help accelerate paydowns. Policymakers have explored ways to help consumers reduce or avoid protracted credit card indebtedness to help them save on interest expense, build liquidity cushions, and leave more of their credit lines available for emergencies. 2 A large subset of credit card revolvers carry their debt for protracted periods, sapping their ability to save, using up available credit lines, and, when excessive card debt leads to delinquency or default, leaving them unable to access less expensive forms of long-term credit. That figure approaches the amount of interest paid by all households on auto loans and leases. families who revolved credit card debt 1 paid an estimated $111 billion in fees and interest in 2021. Senior Advisor - Financial Health Network
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