There have been numerous reports lately that credit-card minimum payments will jump from 2% to 4% of balances owed. This will hurt some and lead to cardholders having to turn to payday loans to pay off credit card bill minimums. These people affected by the upswing in minimum payments in already bad money situations could get worse if they do not pay off these amounts owed monthly.
Although MarketWatch reports that many credit card companies have adopted a new minimum payment formula that consists of the interest and any fees incurred, plus 1% of the outstanding balance, a formula which federal regulators suggested in 2003 to ensure that cardholders pay off some principal, rather than just interest and fees. This formula will add up to 4% of the balance for some credit cards. Many people will also notice the percentage go down from before. The new minimum will depend entirely on the balance you’re carrying, the interest you’re paying and whether you incur late, over-limit or other fees. There is definitely a lot to this formula and it all depends on each individual case.
The Consumer Federation of America, a non-profit consumer advocacy group, claims that some people will not see much of a change but for people who are paying fees or carrying high balances, it could be significant. People that will see a bigger blow to their statements are those hit with a late fee or two because they are going to have to pay the full amount plus 1% of the balance, plus amortized interest. 1% is a significant amount of money to people with large credit card balances.
Counselors from the Consumer Credit Counseling Service have been receiving tons of calls from worried cardholders thinking their minimum payments will double. The CCCS calculated that most will be fairly nominal but some consumers’ credit-card statements increased the payment 10% to 15% higher.
42% of consumers said they pay off their credit-card balances in full every month, and another 33% said they always pay more than the minimum payment due (being the best way if you are not paying it off), according to a survey by the American Bankers Association in 2005. You can only imagine how worse off debtors are at paying their balances during this credit crisis even with some guidance. Although, The new guidance will help consumers pay off debts and keep them more aware of their credit card payments when the minimums do rise.
There will be people who do not adjust to this well and those who turn to debt consolidation companies or payday loans to pay off the minimums. Payday loans can help short-term payments for those in a financial bind, but are a temporary solution. In many cases, payday loans could hurt the consumer by its higher interest depending on the interest and fees of the credit card itself.
Tools and More Help
Did you know that you can calculate your credit card debt using a payment calculator or other tools that help with you overall budget.