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[C1222]Credit Card Minimum Payment Increase

by Talbert Williams, Tal

For many years, the major credit card companies have allowed their customers to pay as little as 2% of their outstanding balance each month. This payment, while minimal, has actually allowed the credit card companies to reap record profits, mostly because of high interest rates. While interest rates on home loans have lately been in the neighborhood of six percent, the interest rates on credit cards sometimes reach as much as thirty percent per year!

The customer may not be paying much on the principal, but if they fail to pay that principal, the interest accrues quite quickly. In fact, it can take more than nine years to pay off a simple $1000 balance if the cardholder only makes the minimum payment each month at an interest rate of 20%.

Obviously, it is not in the best interests of any cardholder to make only the minimum payment each month. Many Americans can't afford to pay more, as the average credit card debt in a U.S. household is now approaching $10,000. On such a debt, the minimum payment would be $200, and for many, that is all they can afford to pay. At this rate, someone who holds the average amount of debt would probably need their grandchildren to finish paying it off for them; it could literally take generations to pay off that bill at 2% per month. That is about to change.

A recent change in Federal law requires the major credit card companies to increase their minimum monthly payment. The law was passed some two years ago, but the lenders were given a grace period to allow them to comply. Soon, several major credit card companies will begin charging a monthly minimum of 4%. This may not seem like much, but for those with large balances, a doubling of the minimum payment could be devastating.

A $200 monthly payment for someone with a $10,000 balance will now become $400, and for many Americans, that increase could drive them to file for bankruptcy. Should you find yourself with a large balance and a minimum payment that may be hard to pay, what can you do?

Without preaching, a little bit of common sense should be applied in this situation. Cardholders with such problems should, first and foremost, stop using their credit cards. Adding debt to a debt problem is not good. The next step would be to try to cut some household expenses to raise money to meet the new obligation. Buying lunch at work? Can you take a sack lunch instead? Can you consolidate your debt with a home equity line of credit? Try calling your bank and see if you can negotiate a better interest rate or a more favorable repayment schedule. It's not likely to work, but it's worth a try.

There are numerous solutions available to anyone with problem debt, but this fact is obvious - once the minimum payment goes up, it will not come down again. The credit card companies, by increasing the minimum payment, are trying to avoid situations where debtors cannot pay their monthly bills. The 4% rate will allow most cardholders to pay their bills sooner, and will probably cause fewer customers to default on their payments. That should benefit everyone.

In reaction to the passing into law of The Credit Card Accountability, Responsibility, and Disclosure Act (aka The Credit CARD Act), credit card issuers are raising rates, fees, and charges prior to the phasing in of the acts provisions beginning in August. Reaction to the bill has been swift as banks are notifying card holders that their fixed accounts are being switched to variables, grace periods on purchases will no longer apply, and that annual fees are being reinstated. Among the most severe of the increases is Chase's hike of its minimum payment on balances to 5% from the standard 2%.

For card holders targeted by the hike, that increase will have an immediate and drastic effect on already stretched budgets. For those carrying substantial balances it could be devastating. For example, for a card holder with carrying a total of $40,000 the current minimum payment is currently about $800. With Chase's new minimum, that payment will go up to $2,000 per month. With other options, like a refi to pay down the balance likely to be unavailable, a card holder still has a couple of choices on how to handle the increase.

The first option is to transfer the balance away from Chase. Balance transfers can have a lot of traps for card holders but, with a little bit of homework, can provide a solution which can take care of the minimum payment issue and save thousands of dollars in interest payments. Here's a checklist for getting the most out of a balance transfer:

* Look for a long lasting low interest or interest free deal ? With the major issuers raising fees and rates, there will be others offering deals looking to attract new customers. Be sure to go through the fine print to see exactly how long the deal lasts and if there are conditions under which it can be changed.

* Make sure that the balance transfer fees on the receiving end are reasonable - These fees are increasing as well at many issuers. A deal that looks great can get expensive quickly if the balance transfer fees are high. Many of the majors have already raised this fee to 4 or 5% of the transfer.

* Get familiar with the payment hierarchy on the receiving account ? You getting a deal on transferred balance but additional purchases on that account will probably be treated differently. Many issuers will allocate monthly payments toward reducing the no or low interest balance on the account while letting the balance of purchases made on the card increase. In other words, if you make a $1,000 in purchases and write a check for a thousand when you pay your bill, your transferred balance will be reduced by a thousand while your purchase gets charged interest. If that situation repeats for a few months, you'll be paying much more interest than anticipated. If your new account is going to treat purchases in this manner, consider making purchases with a different credit card to maximize the benefits of the new account.

* Prioritize your payments - If you get a low or no interest deal, assess the other accounts where you're paying interest. Prioritize payments toward the ones with the highest interest rates to pay them off faster.

Times being what they are, if you're trying to transfer a balance but carry a low credit score you make have difficulty finding a deal that makes sense. If you know that you're not going to be able to keep up with the minimum payment increase at Chase, consider your options for a debt negotiation. There are many companies offering debt negotiation so be sure to enlist a law firm with experience and a track record of successful solutions. Entering into a debt negotiation requires an assessment of your total financial picture so, in addition, insist on working with a firm that takes consideration of your circumstances in order to get optimal results.

Your immediate benefit will be an approximate cut of 50% on your payments on the account with a long term benefit of paying off your debt much faster than if you were just to continue making minimum payments. A debt negotiation can also involve multiple accounts so if you are struggling with more than just your Chase account, you can include other credit cards, department store debt, signature loans, and other unsecured accounts. The same percentages apply, giving you a payment cut of 50% on all accounts included as well as a reduction of 40 to 60% on the amount of the collective balance.

As many credit card companies continue to make it more difficult for their card holders with higher expenses and interest rates, it is extremely important to look for solutions to mitigate those costs as much as possible. In the case of the pending increases on accounts being held with Chase, these solutions should be acted upon sooner rather than later.

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Both Talbert Williams & Naveen are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Talbert Williams has sinced written about articles on various topics from Prospects, Bankruptcy Law and Debt Consolidation. . Talbert Williams's top article generates over 33100 views. to your Favourites.

Naveen has sinced written about articles on various topics from Facts about Barack Obama, Credit Cards and Data Recovery. USA Debt Settlement has debt settlement programs that will reduce your credit card balances. USA Debt Settlement specializes in , Debt negot. Naveen's top article generates over 6600 views. to your Favourites.