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Credit card companies to increase minimum payment amount
(Knight Ridder News, September 18, 2005)
Consumers who make only minimum payments on their credit cards are in for a shock. . . . Spurred by a new federal mandate, card companies over the next three months plan to raise - in some cases double - the amount card holders must pay each month. . . . A consumer carrying a $10,000 balance may see a minimum payment jump from $200 to $400. . . . The new minimums are designed to prevent consumers from being hobbled for decades by credit card debt. An estimated one-third to one-half of American families carry credit card debt, with many making only minimum payments. . . . "Many credit card borrowers don't realize that if they just pay the minimum monthly payment, they may never pay off their card," said Mike Peterson, vice president of the Salt Lake City-based credit counseling group, American Credit Foundation. . . . It would take a consumer making only the minimum monthly payment nearly 30 years to pay off a $2,000 credit card balance at 18 percent interest. Total interest payments over that period would be about $5,000, Peterson said. . . . Increasing the monthly payment from 2 percent to 4 percent of the outstanding balance will require only 10 years and $1,100 in financing costs to pay off the same amount. . . . "This is a positive for consumers," Peterson said. "They won't be able to carry as much debt and they will get out of debt faster." . . . While long-term benefits of the change are clear, Peterson and others worry about how families will react in the short term. . . . Increased payments certainly will catch most families by surprise. And short-term costs may be more than many low to moderate-income families can bear . . . [COMMENT by Lorenzo: And I'll bet that most of the credit card companies won't spring this change on their customers until after they load up with debt during the holiday season.] . . . Many low-income families use credit cards for emergencies or just to get by, he said. "Some aren't in a position to make a higher payment. A change like this could drive a lot of people into food pantries." . . . While the federal Office of the Comptroller of the Currency said it is giving credit card companies some leeway in how they raise monthly payments, all are required to do so by the end of December. "This isn't optional," said Comptroller spokesman Dean DeBuck. "We will be making sure they comply." . . . Credit card companies have indicated they will, even if several have said they would not have mandated the increase on their own. The companies will notify card holders in coming months of when to expect higher monthly payments -and how much higher they will be.

posted by LoZo 11:17 AM