Buyers Beware: Government Pressures Credit Card Companies To Increase Minimum Payments

Government pressure on credit card companies has forced some of the major players to raise minimum payments from the existing required 2% of the outstanding balance to 4%. MBNA, Citibank and Bank of America (Bank of America just purchased MBNA’s credit card portfolio, making them the largest credit card issuer in America) have all announced the increase, and given that industry history seems to demonstrate creditors follow each other’s leads, it’s a safe bet others will follow suit shortly.

SAN DIEGO, CA (PRWEB) February 3, 2006 -- Government pressure on credit card companies has forced some of the major players to raise minimum payments from the existing required 2% of the outstanding balance to 4%. MBNA, Citibank and Bank of America (Bank of America just purchased MBNA’s credit card portfolio, making them the largest credit card issuer in America) have all announced the increase, and given that industry history seems to demonstrate creditors follow each other’s leads, it’s a safe bet others will follow suit shortly.

An estimated one-third to one-half of American families carry credit card debt, many of who only make the minimum monthly payment because that’s all they can afford to make. Soon, the minimum payment will be doubled and these families will be forced to analyze their budget to find the extra cash to meet new minimum payment requirements!

Is raising the minimum payment good or bad news? Debt-Free America weighs in on the issue below:

The Reasoning

With the new bankruptcy laws in place, the government continues to look for ways to keep consumers out of bankruptcy. Much of the law created regulations seemingly unrelated to consumer bankruptcy, but designed to keep consumers out of it. For instance, the new laws require credit counseling prior to bankruptcy, which hopefully results in a debt management program rather than filing with the courts. Credit card issuers are also required to tell consumers on their monthly statement how long it will take to pay a debt off at the minimum payment, and how much interest they will pay over time, hopefully to discourage minimum payments.

Your minimum payment is calculated at a percentage of the balance you owe, usually around 2%. When your balance goes up, so does your payment. With the increase to 4%, your payment will double. This increase occurred to help consumers get out of debt faster: now you will be paying your balance off more quickly. However, if you are already struggling to make minimum payments, this could be a major concern for you.

Big Surprises

Unless you are a savvy consumer and have heard about this issue, many creditors have kept this issue very hush-hush and no major announcement has been made. Increased payments certainly will catch most families by surprise. These increased costs may be more than many low to moderate-income families will be able to bear, since many, especially in an expensive market like San Diego, use credit cards for emergencies or simply to get ahead. Further, credit cards simply make it easy to spend money we don’t have, because a $2,000 purchase can be paid back at $50 per month, allowing us to purchase items we wouldn’t normally be able to afford.

“Many people aren’t in a position to make a higher payment, so when they get their credit card bills and see that it has doubled, a change like this could drive a lot of people into more debt and even bankruptcy,” says Gary Symington, president of Debt-Free America, a local non-profit credit counseling agency that works with people to help them budget, get out of debt and effectively manage their personal finances.

Credit card companies will notify cardholders in the coming months of when to expect higher monthly payments -and how much higher they will be. In any event, the increase will force many cardholders to make hard choices.

There are ways to avoid getting yourself deeper into debt. The time is now to look at your budget and find ways to help minimize the pain of these increases.

For more information, and tips on how to make the minimum payment increase manageable, log onthe "In the News" section of www.debtfreeamerica.com to view the entire text of this article.

Debt-Free America is a 501(c)3 non-profit, community service organization offering confidential and professional credit counseling, debt management programs, and financial education to consumers nationwide. Debt-Free America is dedicated to providing FREE services to help financially distressed families and individuals effectively manage their personal finances. Debt-Free America is also dedicated to giving back to their community by volunteering, sponsoring non-profits and in their seminar messages. The Board members and operations staff have a long-term commitment to helping anyone in debt crisis, and even those not in a debt crisis. Debt-Free America has been in the business since 1997 and is now serving over 16,000 clients nationwide.

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