Credit Card Minimum Payments To Increase
Credit card holders that carry a balance and only pay the minimum amount will likely find a big surprise in their credit card statement before the end of the year. For years credit card companies have lowered the monthly minimum required payment on outstanding balances to where it now is approximately 2% for most credit cards. While credit card companies did so because this maximized the amount of interest customers paid to them, new guidelines set forth by bank regulators will likely mean an increase in the minimum percentage customers will have to pay in the coming months.
For most credit card users, this change will be a positive event since it will ultimately mean that they pay less in interest charges to the credit card companies. For the estimate 11 million credit card users that pay only the minimum required balance, however, the change could have a significant negative impact on their monthly finances.
Many experts are predicting that the change will increase the monthly minimum payment 50% - 100% to somewhere between 3% - 4% of the outstanding balance. While this increase of a percentage point or two may look insignificant, it will likely mean a hundred dollars or more to most families that carry a balance.
If a consumer has $5000 in credit card debt, under the current 2% minimum payment, that consumer would have to pay $100 each month. With the expected increase, this will rise to $150 - $200 a month. If a family carries a balance of $10,000, their payment will go from $200 a month to between $300 and $400 a month.
These guidelines actually went into effect in 2003, but gave the credit card companies a long window to implement the new rules. The guidelines don't dictate a minimum percentage that must be paid, but they do say that the minimum payment must include all of the interest and a portion of the principal each month. In most cases, this will mean a raising of the current 2% minimum to 3% or more.
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