Posted on 05/28/2002 7:35:34 PM PDT by RCW2001
If you make the typical minimum payment on your $8,000 credit card bill, it will take you 34 years to pay it off.
Numbers like those -- almost impossible to appreciate unless you see the calculations on paper -- become even more alarming when one considers the growing number of people carrying credit card balances.
And now major credit card issuers are slowly lowering their minimum monthly payments, a move that could quietly lull consumers even deeper into debt, some consumer advocates say.
"I'm sorry to state the obvious, but credit card companies would love to keep you in debt for the rest of your life," said Linda Sherry, executive director of Consumer Action, a national, nonprofit consumer education group based in San Francisco.
A few years ago, most bank and store credit cards required a monthly payment of at least 4 percent of the balance.
The standard has drifted down toward 2 percent the last couple of years and keeps sliding. Some companies this year even dipped to 1 percent or lower.
The bottom line: It will take even longer to wipe out the bill for consumers paying just the minimum, and they'll end up paying more.
"The minimum payments have dwindled so much lately," Sherry said. "It's a real sea change."
More than half of U.S. consumers don't pay their credit card bills in full each month, according to the Federal Reserve. A Fed study released in 2000 said 55 percent of families are carrying credit card balances, compared with 52 percent in 1989.
With 1 billion credit cards in use, the average household has $8,367 in credit card debt, according to the research firm CardWeb.com, up from $2,985 in 1990.
Among the 185 million U.S. consumers with at least one credit card, the average person has 2.7 bank cards, such as MasterCards or Visas, and 3.8 store cards, according to CardWeb.
Paying the minimum is a common phenomenon in today's growing paycheck-to-paycheck circles, experts say. With minimum payments now sometimes dipping below a card's monthly finance charge, consumers paying the minimum could be sinking deeper in debt even when they don't make any new charges.
"It's like companies are trying to get you addicted to paying the minimum," said Russ Haven, a spokesman for the U.S. Public Interest Research Group in New York. "You think, `Oh, I'm off the hook.' It (lower minimum payments) may seem like temporary relief, but it's a way to cultivate a nation of debtors."
Among those reducing minimum payments below 1 percent for at least some customers is MBNA Corp., which has slipped to the second-largest card issuer behind Citigroup Inc. Spokespersons for MBNA didn't return phone calls seeking comment.
In its most recent national report, Consumer Action for the first time found that none of the 42 credit card issuers surveyed required minimum payments greater than 3 percent.
Most consumers probably wouldn't notice a declining minimum payment because most don't read their card companies' disclosure notices anyway, said Gregory Elliehausen, who follows consumer debt issues as senior research scholar at the Credit Research Center, a Washington research association affiliated with Georgetown University.
But he's a little surprised by the trend. "With 1 percent payments, it can't get much lower than that," Elliehausen said.
Credit issuers that are lowering minimums may be trying to boost revenues that they're losing because of lower interest rates, some consumer advocates say. The Federal Reserve last year cut interest rates by 4.75 percentage points, forcing issuers whose rates are calculated from the prime rate plus a certain number to slash rates as well.
But most credit issuers have minimum rates and cut consumer rates by only 2 to 3 points. Meanwhile, the nation's top six issuers, with a combined 263 million accounts, posted profit increases of 20 percent to 40 percent in the final quarter of last year, according to CardWeb.
The banking industry strongly denies that creditors want to squeeze more money out of consumers.
"Just because you are offered a lower minimum due doesn't mean you should take it," said Julie Malveaux, a spokeswoman for the American Bankers Association in Washington. "It's great when you're in a crunch. But we tell people that when it comes to paying your bills, it's always better to try to pay more because you want to get your balance down."
Still, the banking industry viciously fought a proposal to spell out the costs of carrying a balance. Legislation proposed three years ago by Rep. John LaFalce, D-N.Y., would have required companies to tell customers on each statement how long it would take to pay off their bill, and the total interest charges, if only minimum payments were made.
The proposal was later folded into bankruptcy reform and modified to require creditors to provide only a generic example of how minimum payments work. The proposal was killed last year.
(Teresa Dixon Murray is a reporter for The Plain Dealer of Cleveland. She can be contacted at tmurray@plaind.com.)
They don’t care; in fact they probably rejoice and celebrate when the minimum payment is dropped by charging up more debt. They are blind and stupid to this issue and the credit card companies love every minute of it.
Bankruptcy’s are up and I’ll bet the primary culprit that drives the average person to declare is credit card debt.
I remember growing up, a credit card was unheard of and later when I was old enough to understand such a thing, you had to go and retrieve the application from a bank, fill it out and provide a company with reams and reams of financial background and even then some good folks were turned down just for lack of info never mind bad credit.
Today the credit card companies might as well have their own mail service. The preapproved, just sign your name and your done apps are hitting my box at the rate of three to five a week.
They have made it so that all you need is an address and a pulse and you can qualify for $1,500.00 on a Visa or MC. It’s even more maddening when you hear of someone’s dog, little Joey’s bowl of fish or that brand new Sig 229 you christened with a nickname receives a preapproved supper-duper gold plated, double jewel incrusted Visa card complete with titanium carry case and a 7.2 billion dollar credit limit.
Personally I hope the card companies go the way of the dodo bird.
TMMT
how many of us are excited when we get those low interest introductory rates for balance transfers? (gee I didnt know my credit was THAT good.....
SURPRISE!!!! It's not and they know it!!! ALL credit card agreements have clauses allowing for exorbitant fees for late payment and even allows them to cancel the agreement you signed... often allowing the interest rate to go from 0%, 2.9%, or 4.9% to as high as 25% or more!!!! And, by the time you realize it happened you are already paying the higher rate. The really sad thing is THEY KNEW from your profile that you would probably pay late (and if you don't, they'll find a way to force a late payment on you--see above)
Oh, and thought you were getting a great low rate on transfers to your current card? Hope you didn't already have a balance, because even if you pay off your ongoing or past purchases, payments are not applied to only the current purchase or past balances, but are instead divided between the transfer and other purchases resulting in guaranteed high interest fees on recent balances that you thought you were paying off in favor of keeping a high balance on the low interest transfer amount.
In short.... pay off balances as soon as you receive the statement (on-line payment is even better to avoid snail-mail delays) CHECK, CHECK, CHECK your statements for charges by the CC company and don't be afraid to complain to A SUPERVISOR! Some of the stuff they are doing is REALLY sleazy!
More remarkable that they are surprised by this trend ....
... given today's 24-hour/da TV/radio/magazine ads of "Just do it!" and "Whatever you what - Whenever you want it.... Immediate gratification...."
which is why students (often without income) are the #1 preferred group targetted by CC co's. After all, Mom & Dad will bail Johnny and Mary out of that $1000+ debt...can't have society think that they are irresponsible.
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