It’s time to come clean

This holiday season, you might have been too busy burning through plastic to stop and PAY those credit card bills.

It’s easy to lose your bills in the greeting card deluge, or to forget a payment when you have travel plans. If you tend to overspend on gifts, you might simply lack the funds to cover your bill, especially if you carry a hefty balance.

But with late fees reaching all-time highs and minimum payments set to double in January, procrastinate at your own risk.

About 65 percent of Americans carry credit card balances, and most pay only the minimum. The end of the year is when many people tumble off this debt treadmill, said Howard Dvorkin, president of Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla. Most delinquencies come in January and February, he said.

“It’s not only gifts, it’s parties, traveling, going over to a friend’s house with a plate of food or a bottle of wine every weekend of the month,” Dvorkin said. “It’s not cheap, and people don’t budget these things. Then when they see their bill on the kitchen table, they ignore it because they don’t have the money.”

If you’re usually conscientious and haven’t paid a late fee in a while, get ready: Four of the nation’s top 10 issuers now charge $39 for most late payments, while the other six charge $35, according to CardData, a service of industry tracker CardWeb.com, Inc. Citigroup, MBNA, Bank of America, and Providian assess the highest late payment fees. This is a dramatic rise since 1994, when the average late fee was about $12.55.

There are other costs to paying late, of course; your interest rate may rise, your credit score could take a hit, and thanks to a fun bit of fine print in many card agreements known as the “universal default clause,” other issuers can punish you with higher interest rates, too, even if your record with them is spotless.

January is typically a busy time for Dvorkin’s company, but he is ramping up staff to handle even greater call volume than normal this year because of some new developments that may affect consumers’ ability to pay their debts.

First, minimum payments on credit cards are set to double in 2006, to cover 4 percent of outstanding balances instead of just 2 percent. Some banks have already made this change, which was recommended by the Office of the Comptroller of Currency in reaction to growing concern about how long it takes us to pay off our credit cards. Most consumers, it turns out, were unaware that it would take decades to rid themselves of a $5,000 balance if they paid only the minimum amount due.

On top of that, recently passed legislation makes it much harder for people to clear debts and get a “fresh start” through Chapter 7 bankruptcy. New guidelines that took effect in October require individuals seeking bankruptcy protection to meet with a credit counselor and take money-management classes. In many cases, experts say, it’s more likely they’ll have to file a Chapter 13 bankruptcy, which means they must repay at least some of their debts within five years.

“Consumers are going to have a real eye opener in January,” Dvorkin said. “Between the gas prices, the economy faltering a little bit, with bill payments coming in from Christmas and the holidays, and the inability for consumers to file bankruptcy, it is not going to be a fun month for a lot of people. It’s going to be a tough time.”