Credit card debt has its price

Millions of people are now in danger of losing their homes as a result of the meltdown in the sub-prime mortgage market. But millions more face the prospect of financial ruin because of an even more ubiquitous problem: the danger of making only minimum payments on monthly credit card bills.

Michelle Schimeck, 35, discovered this for herself after running up a combined balance of more than $20,000 on five credit cards. She ended up using a couple of cards to pay down the others and then made minimum payments on the remaining debt.

The result: even more debt, and soaring interest rates.

"You're not even denting your debt at all," said Schimeck, a Detroit resident. "All you're doing is keeping your credit card company happy so you can keep your account."

Sen. Dianne Feinstein (D-Calif.) introduced legislation last week to protect consumers nationwide from getting into a similar fix.

The bill, S. 2542, would require credit card issuers to clearly warn consumers about the pitfalls of making only minimum payments on their outstanding balances.

It also would require lenders to inform people about how long they'll be on the hook, and how much they'll have to shell out in interest, if they pay less than they owe each month.

"It's unethical and immoral to not let people know what the terms and conditions are," Feinstein told me. "The banks basically don't want people to know. They make money off uninformed consumers who get in over their heads."

To illustrate her point, she cited the example of a household with $9,500 in credit card debt and an interest rate of 13.74%.

If that family made only the minimum required payment each month and made no other purchases, Feinstein said it would take about 35 years to pay off the $9,500 balance and an additional $12,000 in interest.

In fact, her numbers might be on the conservative side. A survey of 55,000 consumers last year by CardTrak.com, a website that focuses on credit cards, found that the median amount of card debt carried by households is $6,600 and the average debt load is almost $9,900.

The survey found that of the 88 million households with plastic, 61% carry a balance from month to month.

A separate poll by Gallup and the credit rating agency Experian found that about 11% of cardholders usually make only the minimum payment each month.