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Your Credit Card Payment Is Rising: Warning & Tips
By Joel Walsh
Summary: Did you know your minimum payment is rising? A new government program working to get Americans out of debt is pushing 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 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 Payment?
Whose idea was it to increase 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 companies. Yes, this 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 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 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 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 guys cook up, you will have to pay that, too.
Why the 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 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 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.
Tips for Paying Double Easily
How do you pay off your new, higher balance?
Stop Charging
Yes, you will have to make major sacrifices to stop using your credit card. But just look at all the money you'll have in ten or thirty years that you wouldn't have if you had to pay all that
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