Minimum Payments to Increase
December 4, 2005
The New Year will bring more than just resolutions. As 2005 comes to a close, credit card company’s will be required to ask for a minimum payment reflective of 1% the total balance due on the card. But, as this article from the Tennessean points out, this might not be such a bad thing for consumers:
Higher credit-card minimum payments may weigh heavier on the wallet
BY GETAHN WARD • STAFF WRITER
Credit card holders, take note as you head out to shop. Your minimum monthly payments on all those cards in your wallet are about to jump. And you’ll feel the impact — especially if you carry multiple cards and pay only the minimum required by your lender every month. If you carry a high balance, it will hurt even more.
The good news, according to consumer advocates, is that the short-term pain will carry with it a long-term reward. Consumers will be able to pay down their debts faster, with more money going to wipe out the principal and less being sucked up by monthly finance charges and fees.
By year’s end, card issuers will be required to make cardholders pay at least 1% of the overall balance owed, along with new finance charges and fees every month. A few banks are asking consumers to pay as much as 5% of their balance every month.
In the past, credit-card companies could structure minimum payments so that comparatively less money went to pay off the principal, while interest and fees absorbed a somewhat bigger share. The end result was that many consumers who paid no more than the required minimum each month had a tougher time climbing out of debt.
Some Nashville-area consumers say they like the new rules, which are being phased in by federal banking regulators.
Patricia Gordon, who is “aggressively” paying off her credit-card debt, considers the new rules good for cardholders, though she’s not sure exactly how they will affect her payments. “It’ll help them get out of debt quicker,” Gordon said while shopping at The Mall at Green Hills the day after Thanksgiving.
Under the revised rules, a consumer’s monthly minimum payment on a $1,000 balance might increase about $4 a month, but the overall debt would be paid off three times faster. Total interest charges would be sliced, perhaps by two thirds, according to Consumer Action, a national consumer rights group.
Consumer advocates say debt relief couldn’t come sooner. The nation’s total household debt reached nearly $10.3 trillion at the end of last year, including home mortgages, car loans and other bills, according to “The Nilson Report,” a card industry newsletter.
Of that, Americans owed nearly $800 billion on their credit cards. The average household carried $7,155 in debt on cards, up from $5,874 in 1999, “The Nilson Report” said.
The Credit Card Analyzer
December 4, 2005
In the market for a new credit card? Struggling to figure out which would be best for you? Try using the Credit Card Analyzer over at MSN.com. You can search for and compare credit cards based on various factors including APR, cash back bonus, and airline miles.
If you’re going to get a credit card, why not get the one that suits you best?
