Credit Card Minimum Monthly Payments: The Facts

[Viking12]

Given the amount of incomplete information that fueled the prior thread on credit card payments, I'm offering this post for clarification.

This is not a defense of credit card companies or their practices. On the whole, I think they're predators. It is, however, a post to calm some of the alarmism about the new guidelines.

First, the new guidelines are NOT part of the recently passed bankruptcy bill. They are interagency guidelines created in 2003 by the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Office of Thrift Supervision.

Second, the new guidelines DO NOT require that payments automatically raise to 4% of the balance.

"Regulators have not specifically required credit card issuers to boost minimum payments to 4 percent. Instead they recommended 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.

-snip-

For example, MBNA Corp.’s old policy required consumers to pay their finance charges, fees (if any) plus $15 or 2.25 percent of their balance, whichever was less.

The company’s new policy requires cardholders to pay finance charges, fees and 1 percent of their balance. For those who were customers before July 1, the change applies beginning with their January 2006 payment. For those who got a card after July, the new formula was applied immediately, according to MBNA spokesman Jim Donahue.

http://www.cantonrep.com/index.php?Category=5&ID=249889&r=1

Yes, the new guidelines WILL cause hardship for many, I sympathize for those people and believe something should be done to accomodate those people. But those hardships are not going to be as widespread as was implied in the previous thread.

[LynneSin]

1. The clarification is appreciated

I know I got wrung through the ringer and to be honest, I wasn't even clear that the raise in minimum balance wasn't part of the bankerupcy bill.

I know that the Credit Card industry isn't a favorite amongst DUers. But there's a market for easy money and credit card companies provide it. We call them predators because of all the junk mail we receive of better rates, more money, great rewards. But how are credit card companies any less of a predator than the fact that I pass 2 McDonald's and 3 Dunken Donuts on my 11 mile drive to work each day. There is a demand and they fulfill it. Addiction to spending is no difference than addiction to food, drugs, alcohol, gambling etc. I know not everyone is a victem of mad-money spending lifestyle - many are in that position because of this economy. But shouldn't we stop blaming the Credit Card company from being no different than another other industry that provides a desired but sometimes harmful product and instead take responsiblity for ourselves.

If you have credit cards get them paid off and keep them paid off. Switch to a debit card where your spending is limited to how much is in your checking account (I prefer this because I hate carrying cash around). It's good to have one credit card - shope around for the one with the best rates and lowest monthly cost and save it for emergencies only.

If you have debts there are credit councilling services but be careful to who you pick. There are several reputable not-for-profit organizations that are there to help you out and there are others now popping up that are probably more predatory than the credit card company.

Ok, that is all - go ahead, my flame-retardant suit is on. Yes, rumor has it I work for a CC company (I'm from Delaware, what can you expect) but I've also been about $10k in debt with credit card bills and in the past 5 years managed to get my debts now down to $2k (I'm thinking 2006 will be independence day!). They kept sending me offers and I kept opening new accounts so the only person I can blame is myself.

[tx_dem41]

2. I appreciate the clarification as well.

Hey, Lynne...admit it, that wringer that you (and I) went through was kind of adrenaline-producing, wasn't it? ;)

[Viking12]

3. You're both welcome.

Too often here we get into pissing matches based on poor information. I think the new guidleines are good in the long-term. Yes, they will cause some hardship short-term but it will be better for all borrowers as they pay down their debt and are forced to think about their spending/borrowing choices.

It is also a good thing for the economy at large. Cumulative Consumer Credit card debt is in excess of $800 BILLION dollars. Our economy has been proped up by phoney money. If we want a stable long-term economy we need to create a "real" economy.

[LynneSin]

6. That's why I'm such a fan of debit cards

I really do like the convinience of plastic not only because I'm not lugging around a ton of cash but because I can see just exactly how my money is being spent each month. I'm fortunate in the fact that my debit card is through the company where I work so I've eliminated some of the fees associated with it (I don't get hit with the "Double Whammy" at the ATM machines. I'll have to pay a fee to the bank that owns the machine but my bank won't charge for using it). In fact, I think online bill-pay has revolutionized not only how I spend my money but makes sure that I always get my bills out on time. I'm house shopping and I've been following my FICO scores (a 3 digit number that rates your credit worthiness) and since I started using online banking my FICO score has gone up over 200pts

[LynneSin]

4. I was loving it yesterday but it was better in a smoking thread

I was called by one person yesterday a Nazi, a Facist, A Repressor of the Minority (even though non-smokers outnumber smokers but 2-1) and compared to Pat Robertson, Jerry Falwell and Slave Owners in pre-civil war united states.

And all the while I kept replying back because personally these dumbasses can't affect me. He figured if he insulted me enough everyone would agree with him and yet more people were against him and some I think just to keep the guy irritating.

I don't think the guy ever caught on that if he kept posting I would keep replying because I'm not backing down from idiots who think that pregnant women shouldn't be waitressing or when he went after a very dear friend of mine who actually works with worker-safety and explained smoking bans better than I did.

[moriverrat]

36. Smoke break time

Hello, LynneSin.

Thanks for the reminder. Don't worry, I like the outdoors.:)

[jbnow]

29. Perhaps we call them predators because

my people use to be charged with usury and go to jail for the kind of interest rates credit cards can charge.
(OK my people weren't mafia. just Italian)
I realize it is legal, I just don't know why.

I did know this was not part of bill but part of new guidelines set by Office of the Comptroller of the Currency. In the long run it is good. That does not make up for the harm it can do to some in the short run, especially this winter when heating bills might also nearly double.

I know the high cost of paying the minimum of a large debt at high interest but debts incurred under old agreement should not increase.

There is much we can blame the credit card companies for, but this is not really one of them. We can't blame them for our spending habits but we can for their billing tricks.

[vonslagle]

5. First they give us unlimited credit,

Then they took away our right to bankruptcy.

Now they want more money.

Tom Joad can tell you how this one is going to end: "I Owe my soul to the company store."

[tx_dem41]

7. No....they know they are going to get less money.

That is why consumer groups were for this regulation.

[vonslagle]

9. Huh?

I used to just pay the finanance charge. Now I have to pay the Finance charge AND 1% of the principal.

That's MORE money.

[tx_dem41]

10. Do you have any idea how interest works? n/t

[LynneSin]

12. So basically you were going to take their money and then....

....spend the next 30 years paying them back $50-100/month. Let's say you have a $2000 limit with 21% interest and you pay the miniumum of $40 month. It'll take almost 10-12 years for you to pay back that loan and by the time you're done you'll have paid the credit card company like 3-4times the money you originally used on their credit card. So that $2000 limit you had on your card became $8000 by just paying the finance charge.

Credit Card Companies love you!!

The consumer groups, which advocated the change, are simply pushing people into trying to pay off these cards.

Maybe by paying more than the minimum it'll be tight for a year or two but then the card is paid off and the credit card companies will make much less money off of you.

Go ahead and feed into their system.

Edit note: Yes I do know the difference between there and their!!

[vonslagle]

15. You're assuming

That:

A) I'm not using my credit cards anymore

B) I intend to someday pay off the balance

Since neither A nor B can be found to be true, I stand by my original statement.

Is this irrational? Perhaps. But I learned fiscal discipline from BushCo®.

I didn't go into debt, I just running a budget deficit.

Meanwhile Visa® Inc. has been purchasing a lot of junk bonds in the Vonslagle® Corporation. I suggest they limit their exposure in that equity.

[LynneSin]

17. Hey, can you PM me your address: I'll get you on my companies mailing list

We love folks like you because for your thrill of taking our money we'll be taking yours for decades to come. And if you choose not to give to us anymore then we'll crack down on you so hard you wouldn't even be able to buy a pack of gum on credit.

Hey, I've lived that life. I love life better with independence from those damn credit cards!

[vonslagle]

20. See! I knew it!

Your company IS trying to trick me into wage slavery!

And thanks to your willing industry accomplices in Congress, we've lost our Constitutional rights to Bankruptcy protection.

Tom Joad was RIGHT!

I OOOOOOOOOOOOwe my Soooooooooooooul
to the company store!

[tx_dem41]

21. No....it sounds like you actually GAVE your soul to the company..

store. Quite willingly. Hope you enjoyed the ride, at least.

[LynneSin]

23. Constitutional Rights to bankerupcy?

Wouldn't that require a constitutional amendment to change it?

The money was never free - for most of us we abused it and it's time to pay it back. The biggest problem with this country is sometimes we just fail to take responsiblity for the problems we create ourselves. But knowing that we're being lead by the king of Irresposibility I'm not suprised people are so upset about this law.

Maybe if we used the common sense our grandparents tried to instill on us many of us wouldn't have had this problem.

THe money was never 'free'. Ever read those "Terms of Use" fine print that comes with those offers?

[vonslagle]

26. No, it's already in the Constitution

It's in the Ninth Amendment.

Right next to the right to Privacy.

[tx_dem41]

28. Is that the Amendment that contains the right to free ice cream as well?

n/t

[vonslagle]

35. Actually,

Free Healh Care, Education, Living Wage, and Abortion on demand.

[sendero]

25. "I didn't go into debt, I just running a budget deficit."

And that will eventually be as ruinous for you as it is going to be for our country.

[LynneSin]

8. I'm going to teach you a simple word

"NO"

When I drive to work each morning, in my 11 mile trip I pass 2 McDonalds and 3 Dunkin Donuts along with a variety of other fastfood restaurants that somehow manage to be opened at 6:30 in the morning when I drive to work.

We demand fast easy food for our early morning drives into work and thus such a high number of these places opened all highly travelled routes. But if I ate at those places every single morning I don't even want to think what it would do to my healhier eating plan I've been doing.

Everyday I get 2-3 requests to open up a credit card. Since my mailbox is next to the dumpsters right in the complex, I rip those letters up right there on site and throw them away.

They gave us unlimited credit because we demanded it. And then many of us started bailing on paying those bills back. Some because of unforseen crisis (job loss, medical issues, etc) and many more because of foolish spending.

It's a two way street and maybe we need to be a little bit responsible too.

[msongs]

11. one donut $.75, one coffee $1.00, X 365 = $638 per YEAR down the

toilet, literally in one end and out the other. You'd be amazed at how many people have no idea what they spend on useless crap, then turn around and complain they are broke.

Msongs
www.msongs.com/political-shirts.htm

[LynneSin]

13. They did an article about that in the local papers about fancy coffee

They figured there are people who spend thousands of dollars each year just for their fancy mochachinos. I fed into it too not only with the fancy coffee drinks but also with buying bottled water.

Now I spend about $3/week on the big 3.5galleon bottle of water you can put in your fridge (Wilmington water is absolutely horrible - even filtering it makes it only a little bit better) and I have a large cup on my desk for use at the company's water bottled water fountain here at work. And although the coffee is free at work, I'm a green tea fanatic and bring in a box of my own green tea for my morning caffeine fix.

[tx_dem41]

14. I think if I lived in Wilmington I would stay away from tap water...

Dow Chemical and all. I grew up in New Orleans where I drinking water comes from the river (which 2/3 of the country pours their sewage into...and is 30 miles downriver from some of the biggest petro-chemical plants in the country).

[LynneSin]

16. I've improved my savings to justify buying bottled

I use to spend about $2 on bottled water which makes it about $730/year on basically water. Now I figured I pay about $15/month for water at home plus an occasional $2 bottle here and there when I'm travelling (sometimes I'll save those bottles and fill em up at work). I figured I'm spending about $200-300/year for water which well, that's the cost of having safe, clean drinking water living in an Urban area dominated by chemical companies

[KayLaw]

18. It still frightens me

When I try to look into the future, just a few months away, I worry about the people who aren't especially aware and just keep on spending because they've never learned the difference between needs and wants, or because they've been hit with unexpected expenses.

Even those who do try to keep up by watching mainstream media hear very little of this sort of talk. It's all: The economy is booming. Inflation is low. Unemployment is low. Gas prices will continue to decrease. Home values are sky high and sales are roaring. Then come the commercials.

I worry about the families who will be shocked when they get their CC bills and their heating bills, then shocked when interest rates drive up their debt, then shocked when they find out their house isn't worth as much as they thought, and bankruptcy is much harder if even an option. I imagine it will cause terrible stress on families and I'm fearful for the children.

[No Exit]

40. Good post. I agree with you, but one slight correction is needed:

"They gave us unlimited credit because we demanded it."

No. They did not give us unlimited credit because "we" demanded it. When has Big Finance (or any other Big Monopolistic Business) ever cared a hot damn for what its captive customers demanded?

The people who had good payment records may have demanded credit b/c they were entitled to it. But the people who didn't pay their bills demanded it, too, but if you think the Big Boys just decided to give THEM credit to be nice, think again. In the case of those people, credit came with huge strings attached. Those people paid a BIG PRICE for the credit they got.

And the people who understood the dangers of over-using credit stayed away from credit "opportunities" which contained traps of huge interest rates, etc. But the other people fell for it.

Big Finance, like any Big Monopolistic Business, does not "give" anything away for free just b/c people demand it. What they "gave" was, they gave themselves a big, stacked, deck, by which they could pull the unwary into financial dependence, then gouge them for all they were worth.

[Terran]

19. Thank you for this clarification.

There's been so much alarmism about this topic recently, I'm glad someone has set the facts out.

[Viking12]

22. Glad to help! n/t

[Debi]

24. As long as people believe that they are entitled to easy credit

without obligation of paying it off we're going to have these f'ing predators around. (I'm not talking mortgages or car loans or even home improvement loans - I'm talking credit cards being offered w/out any concern about a person's ability to repay)

If a credit company actually looked at income and debt of a consumer prior to sending out an application they would realize whether or not the person could 'afford' the credit account (taking a maxed balance w/interest and the full payment amount against the person's monthly income less their already outstanding debt). Of course this would drive many companies out of business, so WTF?

And really, why do we need credit accounts? Because we want STUFF! and VACATIONS! and to buy others STUFF! and to go to CONCERTS! And order more STUFF! (I sympathize with those who end up paying for medical bills or car repairs or lose employment while having a credit balance due - but I can't think of one thing on my credit cards other than my poor dog having surgery that I shouldn't have waited to buy until I had the cash to do so).

It is hard for me to sympathize with people who spent beyond their means just because they could (which means I don't feel to sorry for myself!)

[LynneSin]

30. As long as people demand cheap breakfasts speedy quick...

...I'll be passing those two McDonald's and 3 Dunkin Donuts each way during my 11 mile trip to work.

And we wonder why our asses got fat and our arteries are almost solid shut

[Debi]

31. It's not our fault, we should sue Nabisco for making Oreos so damn tasty

:think:

My husband and I were just talking about this, that ultimately it is our responsibility to be healthy. Damn.

[area51]

27. Hmmm.

Aren't the majority of bankruptcy filings b/c of medical expenses or job loss? I know some people are spendthrifts, but they aren't in the majority. In this country w/insanely expensive healthcare, you may need credit cards just to afford surgery/treatment.

[LynneSin]

32. I've tried to google for information and reasons were all over the board

There was a Harvard Study that said that half of the bankerupcies were caused by medical calamaties but another site that that one of the top reasons why finanicial mismanagement.

I think what many of us have said in many of the bankerupcy bill threads is that we recognize a need to fix this bill. Democrats tried to add amendments that would protect people in such cases and a few other areas including those who are serving overseas. Republicans rejected all of them.

[OneTwentyoNine]

33. And yet on MSNBC they announce MBNA is raising to 4%

"So far, MBNA, Citibank and Bank of America have announced they are doubling minimum monthly payments on credit card balances from 2% to 4%. Others are expected to follow suit quickly. To some cardholders, that could be seen as a good thing. To others it could be devastating.

If you can handle the increased payment it's good. Let's face it, if you pay only a 2% minimum each month, your debt would probably last longer than most marriages. Doubling your minimum might put you back on the financial straight and narrow. Ostensibly designed to help consumers get out of debt faster, the increased minimums will force cardholders to pay off fees, interest and at least a portion of the principal each month."

http://moneycentral.msn.com/content/Banking/creditcardsmarts/P117014.asp

And yet in your article it says that MBNA isn't raising it's rates--someone is BS'n someone. I've seen this story on everything from major network to all three local stations here in Wichita,all have said minimums will double.

[Viking12]

34. Suddenly the MSM is credible??

On what issue can you honestly say that MSM is the best source for accurate, clear, concise, specific information? The MSM also told us Iraq had WMDs, remember? In typical simplistic fashion, the columnist you link does not actually state the new guidelines, only that the Comptroller has created new guidelines. If you have evidence to prove that I'm wrong, let's see it.

[OneTwentyoNine]

37. Jesus,read your OWN link.....

Ok,it states that minimum rates won't be raised to 4% on EVERYONE...nah,probably just a hundred million or so. The article clearly states that some cards have already gone to a 4% minimum payment of the balance,others won't be raised until the next one or two billing cycles.

"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.Companies are increasing minimum payments as a result of new credit card lending guidelines issued by the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Office of Thrift Supervision."

And whats this? We're supposed to belive that MBNA has LOWERED their minimum payment policy. Maybe the reporter should look into that one again.

"Many cardholders already have begun to see the change.
For example, MBNA Corp.’s old policy required consumers to pay their finance charges, fees (if any) plus $15 or 2.25 percent of their balance, whichever was less.

The company’s new policy requires cardholders to pay finance charges, fees and 1 percent of their balance. For those who were customers before July 1, the change applies beginning with their January 2006 payment. For those who got a card after July, the new formula was applied immediately, according to MBNA spokesman Jim Donahue."

Of course they most likly won't raise the rate on someone who carries a $300.00 balance--what would be the point? No...they'll raise it on people who have a balance of several thousand which could mean a minimum payment of at least $300-400 per month.

Instead of arguing about it I guess we can just wait and see. If it is indeed doubled the outrage will be heard.

[Viking12]

38. I've explained many times....

The people that will be affected are those with high interest rates and high fees. You're being overly alarmist. Yes many people will see changes, but 100 million? Not likely.

Ok,it states that minimum rates won't be raised to 4% on EVERYONE...

At least you've finally accepted the factual evidence.

And whats this? We're supposed to belive that MBNA has LOWERED their minimum payment policy. Maybe the reporter should look into that one again.

Apparently the phrase whichever was less is meaningless to you.


Of course they most likly won't raise the rate on someone who carries a $300.00 balance--what would be the point? No...they'll raise it on people who have a balance of several thousand which could mean a minimum payment of at least $300-400 per month

I have several thousands of dollars in CC debt. I'm not worried that my payments will rise. I have low-interest, no fee credit cards. My 2%minimum monthly payment already exceeds the new guidleines (although I usually pay more anyway). I don't hvae to wait and see. I've called my lender for information. My monthly payments are not going up.

[FearofFutility]

39. That's exactly what I did

I called them to find out, and my monthly payments won't be going up either.(I ALWAYS pay more than the minimum, BTW) I've been following these threads for the past several months and got caught up in the hysteria. For several months, the alarm was sounded "Payments will double next month!" Next month would come, I'd open my credit card statements with fear, only to find out that my payments didn't go up. I finally made the call to allay my fears. Thank you for the fact based post.

[rman]

41. BS argumentation;

the fact that minimum payments now are 2% does not mean it's prohibited to pay more - so in that respect people always have been able to pay off their balances in a reasonable amount of time.

The reason many do not pay more then 2% is because they don't have enough income to do so.
Increasing the minimum payments will not change that, it will only cause many people not to be able to pay off their debt.

Compounded with the new bankruptcy laws for civilians, it's going to be a nightmare for many.

[Viking12]

42. Since neither of the arguments appear in my post...

I'm not sure what to what your comment about "BS Argumentation" refers. :shrug: