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Increased Minimum Credit Card Payments
If you are in the habit of making minimum payments on credit cards, you may have noticed that some of the payments are rising. Ultimately, this is a good thing for consumers. In the short run, however, some families may have difficulty paying more, especially those who are in the habit of keeping a larges credit balances.
For the last couple of years, the U.S. Office of the Comptroller of the Currency has been encouraging creditors to raise minimum payments to cover all fees and interest charges and to pay off a portion of the original debt (to have large debts paid off in about 10 years if no new charges were made on the account). In the past, the 2% minimum payment required by some lenders might keep customers in the hole, paying off debts forever. Although there are no set rules about how much must be charged, many customers may find the minimum payments doubled to around 4% to meet the new guidelines.
The new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is also motivating lenders to raise minimum payments. It will require credit card companies to post a warning on monthly statements that notifies consumers about how long they'll be in debt if they make minimum payments.
Paying more than the minimum payment is good for consumers. The sooner you pay, the less interest is added to the original cost. Most consumer educators recommend payments of no less than 5% to 10% of the balance and stress that paying bills in full each month is preferable (to avoid interest charges altogether).
