Minimum Payments on Credit Cards are GOING UP!
Get yourself prepared, folks, because credit card companies are raising their minimum payments. In 2003 banking regulators passed some new guidelines requiring most companies issuing credit cards to raise their minimum payment. The guidance indicates lenders must establish “minimum payments that will amortize the current balance over a reasonable period of time.”
This means your payment could be double or more than what you are paying now. Right now, most companies set minimum payments at about 2%. Unfortunately, if you carry a high balance and have a rate over 20%, that probably doesn’t even cover the interest owed for the month. Your balance then increases each month by the amount of interest your payment didn’t cover, making it impossible to ever pay the debt off making minimum payments.
Regulators want to change that. The new guidelines are designed to force lenders and their cardholders to reduce individual credit card debt each month by having minimum payments that cover not only the interest for the month but part of the principal balance too.
While I have long been an advocate of individuals making higher than minimum payments in order to ensure they routinely pay down their credit balance, in the short run, this could financially cripple individuals who are stretched to the limit payment-wise. This new requirement may take cardholders that are on the verge of financial disaster right over the edge.
I recommend anyone with credit card debt look carefully at their current payment, figure any payment increase will be to at least 4% of the principal balance owed, and begin adjusting their monthly budget to accommodate the higher payment now. Then watch your monthly statement and/or mailings from the card issuer. They have to notify you 15 days in advance of any payment changes.