Posted on 12/27/2005 7:13:51 AM PST by No Blue States
Your Monthly Credit Card Minimum Payments May Double
The Good News and the Bad
If, like many Americans, you've been incurring credit card debt based on being able to afford the monthly minimum payment rather than whether your income and expenses can support the purchase of a particular item, you may be in trouble. For years, low monthly minimum credit card payments have encouraged us to spend more than we really can afford. Now it's time to pay the piper. Under pressure from the Office of the Comptroller of the Currency (which regulates national banks), the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, some national banks will soon be increasing minimum monthly credit card payments so they are closer to 4% rather than the current average of around 2%. Some major banks have already increased the minimum payments and others are about to follow suit.
In the long run, an increase is actually good news for consumers, but in the short-term, it could be devastating for people who have overextended themselves.
The Bad News
The bad news is that you soon may have to come up with more cash each month in order to make your monthly minimum credit card payments. If you're the average American, with $10,000 in credit card debt, your minimum monthly payments are probably currently around $200 (2% of your balance). Under the new guidelines, sometime this year, your minimum payments may go up to as much as 4% of your balance, or $400 on a $10,000 credit card balance. If that's the case, will you be able to come up with the additional $200? In addition, minimum payments and your interest costs will continue to rise as interest rates go up.
The Good News
Paying 2% of your balance each month barely covers the interest, and leaves very little to apply to your actual balance. That's why, if you owe $2,000 or more, and you only pay the minimum balance of 2% each month, it will take you approximately 30 years to pay off your balance even if you never charge another penny.
Under the new guidelines, the minimum payment will have to cover the interest and have enough left over so you could pay off your balance in 10 to 12 years if you didn't add any new charges. This is good because you'll get out of debt sooner and you'll pay a lot less interest over the years (thousands of dollars for many people).
What To Do
First, think twice before you add that purchase to your credit card. If you charged your $2500 spring break trip to your credit card or if you and your spouse just splurged for a $2500 flat screen television and charged it to your credit card, at 18% interest it would take you 34 years and six months to pay it off if you paid a 2% minimum balance and never charged another penny to your credit card. In that time, you'd pay $6,421 in interest in addition to the $2500 original cost. When you make a purchase on credit, know what the true cost to you will be if you don't pay it off right away.
Second, if you're in the habit of paying the minimum monthly payment on your credit cards, now is the time to go through your budget with a fine-toothed comb and identify areas to cut costs so you'll be prepared for the increased minimum payments if your credit card company puts them into effect.
Finally, calculate your current minimum payment percentage on each major credit card. Divide the minimum payment from your last statement by the most recent balance. Then you may want to call your credit card company and ask them what their intentions are regarding the recommended increase in the minimum payment percentage.
What an amazing substitute for self discipline!
There will be lots of people, that have budgeted for their current payments, that will end up defaulting, then their interest rates will go up......this is a revenue generator for the credit card companies.
Get ready for all replies about how Credit Card is paid off in full each and every month...
Your minimums should double.
Most minimums are set so that the principal can never be paid off.
Rule: NEVER pay minimum.
Rule 2: Pay off the card every month. It is a debt, not a friendly convenience center.
Yeah I worry about that in my case.
Im about to have to pay the fiddler for my moronic lack of financial self discipline. defaulting wont be an option, Im going to have to cut some corners.
LOL I know, I almost asked in the begging that those wise and financially secure not gloat too much.
Oh No ... 2 x $0.00 = $0.00
Budgeting for the minimum payment isn't much of a budget. Get those folks a Congressional seat!
I pay off my credit cards in full each and every month. :)
But seriously, if your credit card company does do this, simply write them a nice little note saying that while you will make the payments, also enclose the cards cut up, and explain that you will never do business with the bank that issued the card ever again, and that you will tell all your friends to never use their cards again.
Well, I wonder what taxpayers will do with that free money they receive as a tax refund ( for being overwithheld) now that they won't have to use it to pay down debt.
We had turned the corner and stopped charging.
Every present under our tree was paid for with cash and we cut all the cards up last month.
Never again, ever. I will pay these bastards off and never let the minto my pocket again.
For impulse buyers, yes. But sometimes people who have little choice when the car suddenly breaks down, or a plumbing problem crops up, or suddenly you have no heat, well, you don't always have $2K cash on hand. As for me, well, I always pay as much as I can (well, well over minimum due) to keep such debt as low as possible.
Add it to the amount they take in a home equity loan to go on vacation.
"Well, I wonder what taxpayers will do with that free money they receive as a tax refund"
As for me I will send it to the card with the highest interest rate.
I'm in the same boat...fighting hard to keep our heads above water due to credit card debt run up in my stupid 20s. It's hard, and slow, and agonizing, and doesn't leave us any reserves if things go wrong. Especially with a kid on the way. As I often say to myself, "I make too much money to be this broke!"
But, I got myself into the hole, and with God's help and some hard work, my wife and I will get ourselves out.
}:-)4
"free money they receive as a tax refund"
Now I see where you have CC debt...
Sometimes if a big expense crops up, I carry a balance, but it bugs the heck out of me.
"If, like many Americans, you've been incurring credit card debt based on being able to afford the monthly minimum payment.."
Let me finish that sentence: "You deserve what you get".
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