Maximum confusion about (credit card) minimum payments

[Newsjock]

http://seattlepi.nwsource.com/money/242057_singletary24.html?dpfrom=thead

By MICHELLE SINGLETARY
SYNDICATED COLUMNIST

There is a lot of misinformation being circulated about an industrywide change in credit card minimum payments.

One reader from Atlanta asked: "I heard recently that when the new bankruptcy law goes into effect in October, our credit card minimum payments will double. Is there any truth to this rumor?"

This is a frustrating financial myth that keeps popping up. Specifically, people are asking me if it's true that minimum credit card payments will jump to a mandatory 4 percent.

The fact is, by early next year many credit card users will see their minimum required payments go up. Some have seen a bump already. But the increase has nothing to do with the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which will take effect Oct. 17. Despite what you may have heard, a change in how much you have to pay on your credit card bill is not covered in this law.

... Regulators have not specifically required credit card issuers to boost minimum payments to 4 percent. Instead they recommended that minimum payments be set so that people could pay off their balances in a "reasonable" amount of time. It seems that the word "reasonable" caused some confusion. So the regulators issued a clarification that the minimum payment must cover interest, fees and at least 1 percent of the outstanding balance each month, DeBuck said.

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[VPStoltz]

1. Who in their right mind would pay the minimum payment?

In the end, you end up paying a whole lot more in interest than you ever thought possible if you stick to the minimum.

[jobycom]

2. Maybe people who have financed their evacuation from New Orleans

on credit cards and have no job to pay them back. Or people whose income fell dramatically under the Bush economy and they had more debt than they could pay. Or students who have partially financed their education on credit cards but have yet to have a full time income. Or people who have separated from their spouses and thus are unable to afford anything above minimum payment.

Far too many people, in other words.

[NYC]

3. I know people who make minimum payments.

It's all they can afford to pay.

[friesianrider]

4. Very easy to say when you've got the money to pay more than the minimum

Don't you think *everyone* would prefer to pay off their card at the end of the month? Don't you think everyone knows full well they will be paying more interest the longer it takes them to pay their cards off? By that logic, no one would finance a car either - they would buy one outright. I mean, it is cheaper to just buy one rather than finance it and pay interest. Same thing with a house. If you're Donald Trump you wouldn't get a mortgage and pay interest - it's cheaper to buy. But if you can't afford to buy a house/car outright or pay more than the minimum on yuor CCs, how exactly does it make more sense? If you don't have the money to do it, you don't have the money to do it...no matter how much you may know it will be cheaper to pay them off right away.

The bottom line is that many people simply cannot afford to pay much more than the minimum, even though they probably all want to and know it is more cost effective to do so. Please try to understand this.

[VPStoltz]

8. I do understand. I guess my statement sounded a little self-righteous.

My point really was that whenever possible, pay more than the minimum. I certainly can not pay off my card debt every month, who really can? I realize the credit industry has got us over the barrel. They offer easy credit (which can utimately screw up your score). Few of us can afford to pay cash for even the necessities. But in the end, we are screwed anyway because if you DON'T pay the minimum, that actually reflect negatively on your score.

[SheilaT]

5. Most people have no clue

how long it takes to pay off the credit card if they only make the minimum payment, even if they never put another charge on it. They just never do the math. And this is quite aside from any financial means to pay more.

[rman]

7. many people can't afford t o pay more then minimum payments

More then 100 million Americans have a credit card debt and use credit cards "to make ends meet". The average US family has 8 credit cards and $8000 debt.
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

[SheilaT]

9. I understand the part about not

being able to afford more than the minimum payment. But it can hardly be stressed enough that most people don't understand that minimum payments insure the debt will last forever.

[rman]

6. so basically it's true

Monthly payments used to be 5% of the debt balance. It was lowered to 2% to make it more attractive for consumers to use credit cards.
More then 100 million Americans have a credit card debt and use credit cards "to make ends meet". The average US family has 8 credit cards and $8000 debt.

PBS Frontline: Secret history of the credit card
November 23, 2004
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

==

"The House of Representatives approves an overhaul of the nation's bankruptcy laws Wednesday, in a vote of 302 to 126.
The bill, which passed in the Senate last month, will make it more difficult to get rid of debts by filing for bankruptcy, forcing tens of thousand of people to work out repayment plans instead.
President Bush is expected to sign the bill, which opponents say will hurt the economically vulnerable."

NPR
Congress Overhauls Bankruptcy Laws
by Brian Naylor
April 14, 2005
http://www.npr.org/templates/story/story.php?storyId=4600645

==

"Within the next month, Bank of America, MBNA and Citigroup will raise minimum monthly payments on their cards from 2 percent of the balance to up to 4 percent, not including interest. Other card issuers are expected to make similar changes by the end of the year."

"On the good side of that, they will get out of debt faster, but on the down side, it's gonna be a squeeze."

Yahoo News
New Credit Card Payment Requirements Bring Good, Bad News
July 18, 2005
http://news.yahoo.com/news?tmpl=story&cid=401&e=2&u=/wyff/20050718/lo_wyff/2831815