Your Monthly Credit Card Minimum Payments May Double

about.com ^ | unknown | Deborah Fowles

[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.

[brownsfan]

"...how in the world could the AVERAGE be 10,000?"

It's our instant gratification society. Kids, when they begin working real jobs just assume they should be equal with mom and dad. Back in the day, we bought used cars and starter homes. Now they build the big new 2500 sq. ft. home and buy two new cars. That is how many get into it. It's a trap. They feel pressure to take on enough debt to get all those things now.
And then there are those that just have a run of bad luck, unexpected illness, etc. $10k in expenses can happen pretty fast.
Given those two groups, I can see the average cc debt being $10k.

[azhenfud]

IMO, if you do happen to carry a balance, shop CC offers of less than 10% fixed APR's for the life of your loan and set up automatic drafts to pay the bill before the due date(s) in case you happen to forget one. Set up a checking account with overdraft protection if you're one who runs their checking account balances to the minimums because it's far better to let the overdraft protection kick in than to get stuck with 24.9% plus interest. With a $10,000 balance, the difference from 18% to >10% - preferrably less than 8% - could mean a difference of complying with the new law under the current payment schedule and your payments doubling.

But, what do I know?

[Alberta's Child]

A similar article was posted here a while ago, and a Freeper pointed out that the banks were opposed to this measure. They'd rather have their customers pay off a $5000 balance over 50 years than over 10 years.

[No Blue States]

Debt can drive people to suicide.
At one point I briefly thought of offing myself "accidentily" so they could collect my life insurance and become financially stable.
I probably shouldnt admit that here, but people should be slow to ridicule others who are facing financial hardships.

No, Im going to live hell or high water and make it over this self created crisis. And I will be stronger on the other side. My family will be financially secure then.
We both grew up dirt poor, never having much so the CC temptation was not something we were able to handle well.
Im ashamed of the poistion I put my family in.
We both work our A**es off and clear about 60k.

[No Blue States]

"The house is paid for and the only debt we have is my vehicle."

If my house was paid for I would have a problem either. Good job.

[mtbopfuyn]

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.

Budgeting and credit cards are more of an ongoing hands on learning experience that is difficult to teach in a classroom. Taking the kids with you to the grocery store and mall so they can comparison shop is a very useful teaching tool. Instilling in them the difference between a want and a need is a must. Let them decide if they want that $100 pair of designer jeans to wear every single day or look in the sales rack for five or more pairs of jeans. Hmm, do they really need 5 new pairs of jeans or can they save those extra bucks or use them for something else they really need?

[Alberta's Child]

Have you ever listened to Dave Ramsey's radio show, or read his book? He's got a great approach to climbing out of financial holes.

[brownsfan]

"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. "

I couldn't agree more. Wouldn't it be nice if personal finance were required, and they quit teaching about why Johnny has 2 mommies. I would think that 2 semsters of personal finance would give a good foundation. Checkbook management, credit card management, retirement planning, insurance, mortgages, and intro to the stock market.
I would have benefitted greatly from that kind of education!

[mtbopfuyn]

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.

And imagine how many of those irresponsible people declare bankruptcy and turn their debts over to the rest of us.

[bkepley]

Good, no excuse not to pay them off quicker.

[No Blue States]

Thanks for the tips. Next month we plan to get a month ahead on the big CC payment because as I told me wife if anything happened that caused us to be late the interest would go sky high. I will also call them all and ask for lower rates.

[mtbopfuyn]

Most wives have no concept of money when the plastic is available.

I'll give you to the count of one!

[Can i say that here?]

God bless you, man. Congratulations on making the hard decisions to work your way out of your problem. No matter how much it hurts to work through it, I've no doubt that you'll always find it to be less painful than staying in the situation you were in.

There are no easy ways out of a financial mess. You're going to pull it off with hard work, common sense budgeting, and discipline. And from your tone, I believe you've got the testicular fortitude to see it through.

Best of luck for you and your family.

[A. Pole]

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.

Some people can be irresponsible, but when the large segment of the population starts to get in trouble it is a systemic problem. The Great Depression was not caused by the epidemic of irresponsibility. Germans or Americans of 1930s were not lazy people.

The usury leads to the slavery

"[...]Before the introduction of coined money the peasant farmer borrowed commodities and repaid the loan in kind, and … was probably able to meet the obligation without great difficulty; but after the introduction of coined money the situation became decidedly more difficult…he must take a loan of money to purchase his necessary supplies at a time when money was cheap and commodities dear. When a year of plenty came and he undertook to repay the loan, commodities were cheap and money was dear", wrote Professor Calhoun.

Unable to get out of debt, eventually bad weather or a poor harvest would bring foreclosure on their land and even bind them into slavery. This enslavement grew to crisis proportions, when Solon came to Athens rescue with his "Seisachtheia" or "shaking off" of burdens. Personal slavery was no longer allowed as security for debts. He canceled such existing debt contracts; and gave back land which had been seized. Farmers who had been sold into slavery abroad by those to whom they owed money were "bought" back and returned to Athens.
[...]"
(A Brief History of Interest)

[devane617]

I rarely ever used credit cards, but about three or four years ago, I stopped compeletly. I use my debit card, or cash. Of cousrse there are times when buying airline tickets, rental cars, etc a card is necessary. My debit card is also my CC. The only consumer credit item I owe in a mortgage. It's a great feeling not to have payments.

[A. Pole]

Generally, the best way to avoid credit card debt is to not get married.

And not to have children. And to share the room with illegal aliens.

[No Blue States]

Thanks for the encouragement Bro.
Im working all the OT I can get and if need be I
will sell my car and drive a clunker.
After having this recent financial awakening, Im more optimistic because when I make my mind up to do something
failure is not an option.

[No Blue States]

"And to share the room with illegal aliens."

LOL!

[AmusedBystander]

And not to have children. And to share the room with illegal aliens.

Children yes, aliens no. They never want to pay their share of expenses and what money they do have they wire back home.

[joesbucks]

I agree there are some santimonious sobs on this forum.

Actually, my wife an I were talking on the way home from the Christmas visits yesterday about people and finances.

I really think that conservatives did many in their tent a dis-service when they came up with the phrase "class envy" to counter the phrase "conspicious consumption".

Instead of making encouraging a wary eye toward those whose life if about the toys, whether they can afford it nor not, it became a taboo to have "class envy".

There's a place for both, when kept in context. But a blanket sweep of "class envy" being taboo is not healthy.