Credit Card Minimum Payments Go Up
Besides hiking interest rates, credit card companies have been raising minimum monthly payments on some accounts.
Chase more than doubled its minimum payment to 5% from 2% in August for customers who had been paying the minimum amount for a long time, for example. And minimum payments were boosted for Discover Miles and Open Road credit cards if more than 90% of the cardholder's balance consisted of a special rate balance transfer, according to Consumer Action's 2009 Credit Card Survey.
Credit Card Companies Offer Higher Interest Rates
The National Consumer Law Center is crying foul, saying credit card companies are trying to skirt new rules under credit card reform signed into law in May. Some of the rules went into effect in August, and the majority will go into effect in February. Now credit card companies must give you 45 days notice before raising interest rates on your account and a chance to opt out of the card. Consumer advocates say credit card issuers are getting around that by raising minimum payments first, then offering customers higher interest rate cards with lower minimum payments. In February, credit card companies will be banned from arbitrarily raising interest rates on existing credit card balances.
What should you do if your minimum monthly payment goes up?
Credit Card Payments: Why Paying More Makes Sense
Paying more per month against your balance is actually a good thing if you can handle the increase. Financial experts have been preaching for years to pay as much over the minimum payment as possible.
If you pay only a 2% minimum payment on a $5,000 balance at 16% interest, it will take you more than 30 years to pay off the card, and your interest will total almost $9,000.
If you pay a 4% minimum payment on that same balance at the same interest rate, it will take you 10-1/2 years to pay it off, and interest will total about $2,400.
If there's no way you can pay the new minimum monthly payment, call the credit card company and see if you can negotiate. In its 2009 Credit Card Survey report, Consumer Action advises Chase customers to call the customer service number on the back of the card and ask for "Proactive Solutions."
When negotiating with credit card companies, know what you're getting into if you accept another card with different terms, such as a higher interest rate.
Seek Help for Credit Card Debt
If the credit card company won't back off the higher minimum monthly payment, get help from a reputable credit counselor. You can get referrals from the National Foundation for Credit Counseling, or check with your local university to see if it has a credit counseling service.
Published 12/31/09 (Modified 02/15/11)