Your Monthly Credit Card Minimum Payments May Double

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 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.

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).

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.

But under the new law the principle would have to be paid off faster-regardless of interest rate-then under the old law. That is the point of the new law.

My point is the credit card companies could just increase the interst rate of a customer without a specific reason if they wanted to. The idea that they want to increase the minimum payment in order to force some people into trouble thus "allowing" the interest rate to be increased is just not logical. Especially so in light of the fact that the CC companies lobbied against this law

Hey. Just had a comment on the tithing comment. I do not mean to demean it (my wife and I are Christians) but the "the way The Bible instructs" confused me. I can find nothing in the New Testament instructing tithing.

I grew up convinced of dropping 10% into the offering plate as a tithe because that's what everyone told me was correct. As an adult, reading the New Testament, I could never find the scripture requiring that monetary tithe.

Do not take me wrong, please. My comment is not meant to lessen an act of tithing. But I was taught from birth to tithe 10%. As an adult I can't find "the way the Bible instructs" in the Bible.

I firmly believe your tithe is from the heart and from your words I know you are giving from the heart. God rewards that. He takes special notice of the activity of our heart (New Testament). It was your words ... "the way the Bible instructs" ... that caught my attention. I am unaware of those instructions, though I am familiar their rewards.

Small, quiet, point of discussion. Could you direct me to the tithing scriptures you refer to in "the way the Bible instucts"?

Thank you.

"but I find that being responsible with one's finances is the best bet."

Tell that to Congress. I love how they pass laws for others who they think spend too much and overextend, while they are the worse abusers themselves.

The reason is to prevent bank insolvency, at least in some markets. Around here (Michigan) there are a lot of foreclosures and many more houses dumping onto the market. Just at the time when interest rates have climbed and pushed down real estate prices, there are even more houses suddenly on the market. This should be of benefit at such time as when I want to sell (perhaps next year) my modest two bedroom place in the city.

Anyway, banks have been scrambling to write a LOT of smaller loans, stuff like home equity loans (I had enough documentation in my car to get a nice enough line to retire my credit cards, but much of my credit card debt was under 5 per cent anyway) and car loans. They're doing this to cover their problems with defaults on $300K homes. I've been to a party at one of those (last summer, friends' house, beautiful, less than a year old) and while they're nice, that's a much worse way to get overextended than a credit card or three.

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