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Reasons for Higher Minimum Payments on Credit Cards
Credit card issuers have historically kept minimum payments
artificially low. They did this to encourage cardholders to
carry balances from one month to the next and to reduce the
speed at which cardholders who only make minimum payments can
pay off their balances.
New Minimum Payment Calculations
Credit card issuers changed the way that these minimum
payments were calculated by January 2006. This was due to new
guidelines issued by the Comptroller of the Currency. Federal
law states that minimum payments must be calculated so that the
cardholder can pay off the balance making minimum payments in a
reasonable period of time. Since that clearly was not the case,
credit card issuers were directed to revamp their calculations
so that a higher minimum payment was calculated for most
cardholders.
Previously, credit card issuers could require a percentage of
the balance as a minimum payment. Minimum payments commonly paid
off barely more than the finance charges, with negative
amortization occurring in some extreme cases. Now, most
creditors require a minimum payment equal to the finance
charges, plus any fees, plus any late payments and an additional
1% of the balance.
The result of the new calculations left some cardholders
overwhelmed with much higher minimum payment requirements. Some
debtors saw their minimum payments jump by 50%. The short-term
result was a spike in defaults. The long-term goal is that the
newer rules will reduce the number of debtors carrying high
balances for longer periods of time.
Higher Credit Card Balances
Another contributing factor to the increase in minimum
payments is the higher average balances carried by cardholders.
Indeed, some surveys published average credit card debt at over
$9,000 for households that maintain balances on their credit
cards. These increases in average debt balances have caused
minimum payments to increase on those credit cards.
Credit Counseling May Help Lower Payments
Debtors seeking debt relief may be encouraged by the ability
of credit counseling agencies to negotiate
lower minimum
payments with a number of major credit card issuers. Sometimes,
minimum payments can drop by hundreds of dollars.
If you are looking for help getting lower minimum payments on
your credit cards, consider calling one of our Accredited
Financial Counselors today. We can help you analyze your
financial situation and provide you with a good faith estimate
of a new consolidated monthly payment to replace your individual
credit card payments. Give us a call
today! |
