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.
Stay away from them!!! This is a warning from the Federal Trade Commission.
Wow, youve gotten hammered hard lately and right at Christmas time too.
Im very sorry to hear that. Maybe my situation isnt so bad afterall. So what if you default on the cards? What can they do about it in OK other than send your phone number to the collection agencies and ruin your credit?
That used to be about all they could do in Tx I think, although im sure they have lobbied hard to be able to repo your soul.
I bet someone reads this thread without ever posting and gains something from it. Maybe some youngsters reading will realize what credit cards can do to your finances and avoid it, or others might try your interest by-down idea.
Others posted great info also.
If nothing else more people realize some cc companies are going to raise the minimum payments soon.
It was suprising that FR search on this story and came up empty.
They probably can't do much. The thing is it is our debt so we feel defaulting will be immoral. They have been pretty good about not harrassing us once we explained our situation. I am working on seeing what I can do to get them to reduce the interest rates.
>>this is a revenue generator for the credit card companies.
1. Credit card companies are against this because they want lower minimum payments. Low minimum payments, and the people who base payments on them, are revenue generators for the CC companies.
2. Defaults do not help credit card companies. They want to be paid back on time, as slowly as possible.
3. The idea that credit card companies want this law so people will default or miss payments and then the CC company can charge higher interest makes no sense either. The CC company can just charge higer interst if it wants. It does not need an excuse. For those few who are adversly affected and their interest rates do go up, its not enough to outweight all the dowsides from the CC perspective.
Good luck, I know how you feel. So do I, having spent the money Im obligated to pay it back.
Although imo cc companies are themselves immoral, two wrongs dont make a right.
I would be willing to bet that card users are paying more for the costs of others' defaults, rather than for the people not financing balances.
We would have to look into this comples issue - there are tax deduction and banks ability to "create" money for lending.
My wife is more disciplined than I am, so getting married was a benefit in this regard. Her weakness is big houses, but they at least hold their value.
Good timing! See the post right after yours!!
LOL! It gives some of our sterner brethren a chance to lecture the rest of us. Wouldn't want to deprive them by explaining we do understand the process but have different priorities.
How much would the payment be on a $0 balance? < /sarcasm>
Yeah, lots of people say that. I guess my brain is just wired weird, because to me it's exactly the same. My net worth is a number, and buying something affects that number in the same way whether I pay cash or not.
Yep, there's a word for the type....
I believe they would appreciate a higher interest rate being paid. If that is a result of people being unable to pay the new minimum, then they get longer payment periods, at a highre rate. The principals will never be paid off.
Well, unless I hit the lottery (which I usually don't play), I'm paying off the cards in the most reasonable manner I know how to. I knocked 7 years off of my mortgage and got a lower interest rate as well. As long as I cut up the plastic, this move is a winner for me.
Forgot to mention that my re-fi is for 20 years, my old mortgage was 30.
"As long as I cut up the plastic, this move is a winner for me."
That is what matters. Formulate a solid plan, be comfortable with it, stick to it. It's good to know the implications of rolling that type of debt into a mortgage. If you decide to do so, and you're informed, great. I don't know your situation, in your shoes, I may do the exact same thing.
You are doing the right things on your own, without the use of a counseling service. Once you use one, it shows the same on your credit report as a BK.
Please, whatever you do - stay away from credit counselors. The fees you pay would do better applied to your debt and YOU have more bargaining power with your lenders than you would getting a third party involved.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.