Soon only a handful of people will not be drowning in debt

Yes, it’s an incentive to not go in debt in the first place.

Does it actually help or are there more people in debt now than when this system was first implemented? I'm not asking if's a good idea or not but if it actually works.

Yes it does. Think about it. What if you didn’t have enough money to buy something you really, really want and also pay your bills? If there was no penalty for not paying your bills on time, you’d go ahead and buy things you really want and put off paying your bills. But you’re still getting the service for the bills you didn’t pay. That’s not fair to the people who provide the services you’re not paying for.

That's the problem right there: what you state is what sensible people would do. A lot of people are not sensible but let themselves be tricked by credit card suppliers, banks and 'buy now, pay a lot more later' marketing schemes. I think the answer could lie in educating people. And more affordable housing. And penalties for banks who rip of people with too expensive loans and mortgages. The system of penalties for people who can't pay their debts would work if people were sensible. That leaves two options: people are not sensible either the current system doesn't work.

New laws make it plain and clear what not paying off your CC balance will cost you. The information must be on every monthly statement. If people are too dumb to still be “tricked” by banks, more education isn’t going to help. You can’t fix stupid. That’s how banks are able to stay in business - by loaning out money, so people can buy now, and collecting interest. People would exploit any ‘buy now and pay the same later’ scheme - putting banks out of business.