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.
Only if my spending doubles. :-)
"I get my re-fi check this week. I'm paying off the plastic and holding a card-cutting party. I'm not gloating at all... "
Nor should you. You have to do what you have to do, but it's seldom a good idea to roll cc debt into long term debt, (mortgage re-fi?). You are simply hiding that you're making the minimum payments.
Paying off cc debt with a mortgage refinance should be a last resort.
That cash comes from not paying "interest". When you stop using credit, you will be amazed how much money you really have.
Consider the government pays a third of a trillion dollars a year in debt support. Wouldn't you like to have that back in the economy?
We tried to do a Refi home equity loan, by the time the mortgage company got their cut it wasnt worth the trouble.
We backed out of the deal but it cost us $350 for a stinking home appraisal. unghh.
Nothing but a better career in some cases, self discipline in other cases...sometimes a combo of the 2.
"And just how do you think they got to make better money in the first place?"
Absolutely incorrect. If your professional discipline has nothing to do with finance, then what bearing does your personal financial management have on what someone will pay you? I could be the best dentist, or plumber in town, but be terrible with finances. Would you pass over the best dentist for someone not quite as good who had his personal financial house in order?
Been there, done that, living it. You're pushing that boulder up the hill, slowly making progress, and then the car breaks down or there's a hospital trip or some other unforeseen expense, and the rock rolls back over you and you start pushing it up all over again. It's definitely a marathon, getting out of debt.
}:-)4
Your right, I will position us to pay no interest except the home note and maybe cars when they wear out.
Build up savings and then in an emergency we will loan to ourselves at 0% interest.
AMEN.... that needs to be repeated....
True, but they still benefit from me using the card over using cash, because they get a cut from the vendor on the sale.
"For this loss other credit card users must pay :)"
Actually, you pay a little. When my kids were younger, I used to carry a small balance on my card. They got older, my wife went to work, I changed cards to one with better terms. I never carry a balance, my credit rating took a hit. It's still good, but they dinged me.
That's why here in Texas up to a few years ago, it wasn't allowed.
The other sister and her husband are good people, but have lived beyond their means and are now dancing with diaster. Add to that, the financially troubled sister has a pinched nerve which she claims makes her unable to work. I don't know the amount of pain she is in, but she could be telling the truth.... or there maybe some fudge in her claims of not being able to. Hubby works in a commisioned job that sometimes causes long hours and little pay.
The husband got very upset during our conversations on how my wife and I and the other sister and brother in law were going to bust out of our financial situations. BTW, my wife does work (we don't have children at home), as well as I and I also work a part time job. We make less than $100k per year, not big money, but we also recognize that we have been blessed in many ways.
I've always have been careful with my money. My wife, (this is a second marriage) was more like her financially troubled sister and brother in law when we married and I've been working with her to set financial priorities. Over the past month she has began to see the light. Her sister and brother in law however have so used the easy money trail that they are now backed into a corner and the depression from this is literally tearing them apart. Plus, sadly, they got other issues that need dealt with.
Hogwash! If we had one more kid, we'd qualify for free school lunches, free medical, and tax credit. We've always been right there teetering on the fence - not enough money to get ahead, but too much to mooch off the government. The house is paid for and the only debt we have is my vehicle. It's all about budgeting and knowing the difference between a want and a need.
We're looking up at at least that much, with some hellishly high interest rates due to spotty payment history, and credit to the point that we don't get solicitations for balance transfers anymore. Stabilizing our credit and payment histories to the point that we start getting low-interest balance transfer capability again will be a huge step forward.
}:-)4
Yep... it's like surrendering in a war. You quit the fight, but you lost the war.
I can understand unexpected expenses, but how in the world could the AVERAGE be 10,000? There has to be a lot irresponsible people out there.
My pet peeve is the fact that our schools do a piss poor job, if they even do it at all, of educating kids on personal economics, especially when it comes to credit cards. Of course if parents would do a better job of this, then that would not better. But I think if the purpose of education is to prepare people for life, this is one of the most important lessons that needs to be taught.
Exactly. Too much house, too much car, cell phones, cable/satellite service, big screen TV's, Ipod's, etc. etc.
What people today consider "essentials" is clearly laughable.
Generally, the best way to avoid credit card debt is to not get married. Most wives have no concept of money when the plastic is available. (Putting on asbestos suit.)
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