Negative amortization

Negative amortization is an amortized loan with payments set so low they do not pay down the debt. With a negative amortization loan, the principal balance increases over time, even if you make the required minimum payment. Federal guidelines issued in 2003 in essense ban negative amortization by requiring credit card issuers to set minimum payments high enough so that whatever amount is borrowed can be paid in a “reasonable” period.