Creditors to double min monthly pmt

From what I read, it's true - major credit card companies like BoA, Chase and a few others are doing it.
I'd like to see if this will hurt those companies (probably not).
If I understand it correctly the government initiated this, but they also want CC companies to lower interest rates.

 

I don't believe they set a specific amount or percentage each month for a minimum payment. the point of it is to get consumers out of debt sooner. currently, with some OC's the minimum doesn't cover the interest accrued that month.

This could be viewed as a good or bad thing. The good side is that you will be forced to pay debt down instead of only paying the interest.

The down side is that if a person going through a hardship can only afford the current minimum this will cause defaults, charge-offs, more bankruptcies.

What consumers need to do right now is utilize low BT offers, improve their credit to get better offers and pay as much as possible NOW towards that debt.

 

Many creditors are raising the monthly minimum from 2% of the balance to 4% of the balance. I don't think it's required to raise the minimum, but, as jenz said, I think it's being done to get more than the interest paid.

There has been a law passed that they have to disclose on the statement how long it will take to pay off the card at minimum payment. I think that's why they're raising the minimum.

 

I have a Citi card and they calculate the payment by adding the interest for that period into the balance and dividing the total by 48. Now the minimum payment comes out to be 2% of the balance, but 75% of that minimum payment is principal (not interest). for example - if my balance is 10k my payment would be about $200 <only $50 of that being interest> so if they increase it to 4% of the balance my minimum payment becomes $400 but still only $50 of that is interest.

This plan makes sense for high interest credit cards but the consumers who have low/0% rates will be forced to pay ridiculous amounts.

 

I like the idea of having to put a the payoff info on the statement. It will really show people how much interest they are paying - I'm sure there are alot of people who don't even realize how much money it really is. I have a feeling there will be a bunch of people going into shock!

 

A check of my low interest balance transfers, fixed til paid, shows that those min payments have always been around 3.5-4%. It's how they limit their exposure to interest rate risk for their fixed til paid terms.

 

For mine, Cap One was about 4%. AT&T Universal is about 2%.

I believe the minimum payment is the same for everyone with that type of card, regardless of terms. So, if you have a low interest card, you're paying more on the balance.

When people see that it will take them 30 years or so to pay off a card, maybe they'll think long and hard about what they really need to charge.

On the other hand, it could be bad for the economy.

 

You bring up a good point Hedwig. I think consumer spending will go down and remaining credit card debt will be shifted to refi'd auto loans, home loans and unsecured installment debt.

I understand the need to pay off consumer debt and that they are trying to do a good thing, but IMHO i think this will be one of the factor that causes the real estate "bubble" to burst. (the bk reform being another one).

 

Another great point by kseab! These big companies will be losing a TON of money so what will happen is consumers will probably see higher rates and fees to recoup that lost interest.

 

Are we supposed to go search the internet to find this article, or what?

????

 

Appears to be a "policy" for BOA and Wachovia.

It is not a "requirement".

: )

• Banks bump monthly amount due on credit cards
  March 26, 2005

• 
  
  Gannett News Service
  
  Gary Cone thinks there's got to be a better way than "The American Way."
  
  "People have a tendency to live beyond their means and, for most people, credit is 'The American Way,'" said the construction superintendent from Melbourne, Fla. "Most people try to get by as cheaply as possible on a monthly basis. I always make a larger payment than what's requested by the credit companies each month."
  
  That's a good thing, because the credit card arms of two major banks -- Bank of America and Wachovia -- have increased the monthly minimum payments customers must pay.
  
  Cone, a client of Consumer Credit Counseling Services Inc., needs to reorganize his finances because of the damage hurricanes inflicted on his home and his ability to work.
  
  "My company builds golf courses," he said. "It's been slow going for me."
  
  But for the millions of Americans carrying credit card debt, the banks' move could be costly.
  
  "The new policy of some banks to raise the minimum required payment on credit card accounts from 2 percent to 4 percent will impact many consumers," said Pamela Hart, manager of Consumer Credit Counseling Services Inc.
  
  "For those who either pay their credit cards in full each month, or pay more than the minimum, there may be little impact," she said. "On the other hand, for those who are barely getting by and paying merely the minimum each month, the effect could be catastrophic."
  
  Hart said that while the average American carries credit card debt of about $9,000, the average credit counseling client she sees has debt more in the neighborhood of $20,000 to $30,000.
  
  She said the change from 2 percent of the balance to 4 percent of the balance would translate into the monthly amount due for a client with $9,000 in debt going from $180 a month to $360.
  
  But for those who might be more overextended with $20,000 in credit card debt, that monthly payment will change from $400 a month to $800 a month.
  
  When a consumer is in a debt-management program with a reputable credit counseling agency, most creditors will allow the consumer to make payments of 2 percent of the balance and will lower their interest rate to allow more of the principal to go toward the balance.
  
  However, there is a price to pay, Hart said. The consumer must agree to destroy all of his or her credit cards and make a real effort to become debt-free.
  

...

 

Anyone been hit with this?

???

 

No, and it's interesting that you said BoA. I just got an offer in the mail from BoA to upgrade my USAirways card to a Signature Visa, and I noticed that the new terms said minimum payment of non-revolving balance, past due amount and fees, interest plus $10.

The non-revolving is because on a Signature Visa there's no pre-set limit, if you go over your credit access line you have to pay anything above that. You can only revolve what's in your credit access limit.

 

Bank of America

My BOA platinum has a payment of finance charges plus $10, and I haven't seen a change in terms. My BOA (Fleet) Titanium just sent out a disclosure at 2% of the balance plus any fees. Both are at prime until paid off. Needless to say most of my debt is in these cards.

My Chase platinum just went to 3% and I have a small balance at 0% until October. I just got a new Providian with a 0% for a year BT is at 2 1/2% minimum payment, but have a very small balnce there.

I've transferred my CITI and ATT cards down to 0, but haven't seen a disclosure indicating a change in the minimum payment yet.

If they all go to 4%, I'm screwed.

 

Bank of America

AT&T is Citi, so I bet they would be in parallel. I haven't seen anything on them, either. I hope they don't change--my AT&T is at .99% until paid, and I'll take as long as possible to pay it off. I can make money in a savings account on that one!!

 

Bank of America

Is it a new law and if so, anyone know where to find it? Like Hedwig said, why pay off something that has a lower rate than an ING account?

I heard rumor that this law only pertains to accounts with a rate over a certain amount because at some point a minimum payment of 2% is LESS than the amount of interest accrued. But I haven't found information to confirm or deny this.

 

Minimum Payments

This thread on Fat Wallet seems to have the most info I can find.

http://www.fatwallet.com/forums/messageview.php?start=0&catid=52&threadid=452622

 

Minimum Payments

Page 3 of the link quotes the OCC. Basically it sounds like it is affecting Negative Amortized CC accounts (where the minimum isn't covering past due/fees/interest which causes the balance to go UP not down).

<<whew! i can breathe a little easier now!>>