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Paying Card Debt

A third of all credit card customers are paying upwards of 20 percent interest, and some as much as 41 percent, according to Vermont Senator Bernard Sanders, an independent.

Sanders had hoped to cap card rates at 15 percent, but his proposal was voted down on Wednesday.

It’s hard to know for sure if that’s bad news for card holders. The card industry generally argues that any restrictions will lead to fewer cards being issued, hurting customers.

But other customer-protection proposals are moving through Congress. One would prohibit issuers from raising interest rates on existing balances unless the customer is at least 60 days behind in payments. The debt would return to the old rate once the customer had made on-time payments for six months.

While issuers would be free to raise rates on new charges, they’d have to give 45 days notice, allowing customers time to shop for cards with lower rates.

If card rates are going to stay high, it pays to double up on efforts to pay down your debts, or to avoid them in the first place.

The first step is to recognize just how expensive these charges are. Because minimum monthly payments are so low, it’s all too easy to put that at the back of your mind.

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Burrow into the fine print on your card contract and you’ll find how the minimum payment is figured. These days, many card issuers set the level at 4 percent of the balance.

Use’s Credit Card Minimum Payment calculator to see how this works.

For example, a card with a $5,000 balance, 18.9 percent rate and 4 percent minimum would start out with a $200 monthly payment, though payments would get smaller as the debt was paid off.

If you continued making only minimum payments, it would take 12 years and 10 months to pay off the debt, with total interest charges of $3,155, which is more than 60 percent of the original $5,000 balance.

What if you doubled you monthly payment to 8 percent of the balance? You’d pay the loan off in five years and nine months, cutting interest charges to $1,210.

Now suppose you transferred the balance to a card charging 15 percent and paid 8 percent a month. You could pay off the debt in five years and six months, with just $915 in interest.

Of course, the best strategy is to pay your card balance in full every month, avoiding all interest charges.

Use the search tool to find low-rate cards. Citibank (Stock Quote: C) and Discover Card (Stock Quote: DFS) offer cards charging zero percent on balance transfers and as little as 10.99 percent on new charges. With deals like that, you could rid yourself of car balances in no time.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at