Credit Card Minimum Payments Raised
Most of the top 10 credit card companies have now initiated new minimum payment requirements for credit cards, many of them within the last three months. This has lead many people holding balances on their credit cards seeing their minimum payment double and even triple.
In January 2003, regulators issued guidelines asking banks to adjust their minimum payments by the end of 2005. The guidelines said that credit card minimum payments should cover fees and finance charges, plus 1% of principal. These guidelines were issued because credit card companies were lowering the minimum payments so that some didn't even cover the interest owed resulting in growing debt if credit card holders only paid the minimum.
While the change will hit some credit card holders hard - especially those with maxed out credit cards that could only afford to pay the minimums - in the long run it is a positive move to break the credit card debt cycle.
This comes at the same time that it's becoming more important to play by the rules with your credit card. Punitive interest rates (those charged when you miss a payment, go over your credit limit, have your credit score deteriorate, etc) will top 31% for the first time ever on some major credit cards. This is because the Federal Reserve increased their rate to 4.25% which in turn bumped the prime rate this past week to 7.25%.
Many credit card issuers tie their punitive rate to the prime rate. This means that banks like Bank of America, Chase and Citibank which all set their top rate at the prime rate + 23.99% will begin charging 31.24% in interest beginning in January for those who have triggered their punitive rate.
With both increased minimum payments and higher punitive rates, it is becoming that much more important to pay down credit card debt as quickly as possible.
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