Credit Card Payments
Your Credit Card Payment Is Rising: Warning & Tips
Summary: Did you know your minimum credit card payment is rising? A new government program working to get Americans out of credit card debt is pushing credit card issuers to raise minimum monthly payments. Will you be able to make the higher monthly payment? Here are some tips for getting by.
If you're an American, your minimum monthly credit card payment may soon be doubling. If you're only paying the minimums now, you'll have to be careful to adjust your budgeting to pay more.
Who's Raising Your Monthly Minimum Credit Card Payment?
Whose idea was it to increase credit card minimum monthly payments? The Office of the Comptroller of the Currency, a bureau of the U.S. Treasury Department that has become more and more involved with reigning in the abuses of credit card companies. Yes, this credit card minimum payment increase was thought up by people trying to help you.
Who will be raising their monthly minimums? So far, some of the largest credit card issuers have agreed to the new standards. Bank of America has already been asking for the higher monthly minimum payment. MBNA, Citigroup (a.k.a. Citbank), Discover, and Chase (on some of its cards) will be breaking the news to their cardholders as Fall 2005 progresses.
How Much Will Credit Card Minimums Increase?
For many credit cards, such as MBNA and Bank of America, the new rates mean that monthly minimum payments will double.
Right now, the monthly minimum payment is only 2% of the balance on most of these cards. The new rate will be around 4% (the actual number may vary from card issuer to card issuer). This means that if you have the average American credit card balance of about $10,000, your minimum monthly payment will go from $200/month to $400/month.
Of course, if you have any additional fees, whether a late fee or a cash advance fee or any of the other fees that the credit card guys cook up, you will have to pay that, too.
Why the Credit Card Minimum Payment Increase?
You may be wondering why anyone would want to make you pay a higher minimum monthly payment. The basic reason for making you pay more is: for your own good.
According to Mike Peterson, co-founder of American Credit Foundation, by doubling the amount you pay per month toward credit card debt, you will cut down on what you pay toward interest by much more. Look:
Old monthly minimum payment of 2% of balance, $2,000 credit card debt at 18% percent interest:
* Time to pay off debt in full: about 30 years.
* Interest paid: about $5,000-two and a half times what you initially borrowed!
New monthly minimum payment of 4% of balance, same debt:
* Time to pay off debt in full: about 10 years. Time saved vs. old payment: 20 years.
* Interest paid: about $1,100-slightly more than half what you originally borrowed. Amount saved vs. old payment: $3,900.
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