Monday, July 25, 2005
Crunch time ahead: In the news: (emp add) Credit Card Minimum Payments Going Up... under pressure from the federal government, a number of banks and credit companies are raising their minimum payment rates from roughly two percent of the total balance to four.
How does that break down? Well, cardweb.com says the average American owes about $9,200 in credit card debt. If you're only making the minimum payment of two percent every month, you're paying about $180.
But if that rate goes up to four percent, your new minimum amount will be heftier: $368. New Credit Card Payment Requirements ...Within the next month, Bank of America, MBNA and Citigroup will raise minimum monthly payments on their cards from 2 percent of the balance to up to 4 percent, not including interest. Let's not forget that gasoline is pretty expensive. And fuel costs (or something) have caused a rise in food prices over the past twelve months. For people just getting by, this triple whammy (min payments, gas, food) will cause a lot of distress. Will it result in a significant downturn in consumer purchases? We think it will.
posted by Quiddity at 7/25/2005 03:13:00 AM
17 comments
Imposing this change on existing debt is sheer stupidity and will wreak havoc on the economy. Combined with the new bankruptcy laws the rate of mortgage defaults is going to skyrocket in the next 12 months.
However, this should've been done long, long ago. A smarter way to do it is to impose it for all new credit lines and either leave existing accounts alone or, bring it up very very gradually.
2% min is absurd and keeps a lot of people from weaning themselves off the credit tit. It also entices people to over-extend themselves on credit.
Simp:
Agree, especially with the phase in of higher minimum rates.
One point though. The 2% minimum is useful should there be a temporary period (e.g. three month) where funds have to go elsewhere. It's a mistake to assume that the only people paying 2% are planning to do that all of the time. Speaking for myself, I usually pay off all of the debt on one card, and a hefty percentage on another (7%). But I've had periods where I did have to drop down to the minimum payment amount in order to deal with other pressing bills (typically medical or automobile related).
Quiddity:
Good point, though (and this goes to why I posted in the first place even though I read daily) the 2% miniumum is what got me into trouble with credit in college.
I was young and very stupid with money. Card companies where just dropping cards on me right and left; "What's the min monthly? Ah hell, I can afford that!" Bizzarre considering I was a math minor as well. It took me many years to dig out of that mess and even longer to repair my credit (now my only outstanding debts are mortgage and a bit left on my vehicle). 2% should be an exception not the norm. I'd even suggest that it would be reasonable to allow people to skip several payments provided that your credit is in decent shape.
There have been times when we were below the poverty level (when my husband taught Catholic school and I was a college student). There have been times when we've been middle class (when we were both working and paying an expensive mortgage in Massachusetts and day care during a previous housing bubble). Right now, we're doing OK.
So I can't fathom people having an average of $9,000 on their credit cards. We've never ever had anything close to that. Maybe $5,000 very briefly after buying a computer or something like that.
Sorry, but I think credit card montly minimums should be in the 5%-10% range. People have GOT to understand how to live within their means. Someone making $30,000 a year can't afford to have $9,000 in credit card debt.
There are many reasons for this mess. Giving out credit cards with high limits like candy to college students is a big part of the problem. Giving out credit cards with high limits to people without collatoral is another big part of the problem.
I have a lot of sympathy for people who are poor and use credit cards to "get by." But I also know many poor people, including my own mother-in-law, who never had a credit card.
uh oh. you know what this means? we need more tax cuts!
It would make more sense to cut down on the banks' willingness to issue new credit cards.
A couple of weekends ago, I spent 45 minutes using my cheep(garage sale) paper shredder to destroy all the credit card and other stuff offers with my or my wifes' info on them that we received in the last 6 weeks or so.
I didn't bother to shred the inserts without our info on them, as I figure knowing what was sent doesn't matter if someone can't figure out to whom they were sent.
It's the new credit cards that are likely to cause trouble for folks, especially as the interest rates start to go up as they have in the past.
People have GOT to understand how to live within their means. Someone making $30,000 a year can't afford to have $9,000 in credit card debt.
We're a two income family that, because of my wife's injury from an accident, has been living off of one income for more than a year now. If our minimum credit card payment doubles then it's just going to kill us. Hopefully my wife can get back into the workforce soon or maybe I'll get a 2nd job and work 70+ hours a week, if that's what it takes.
People have GOT to understand how to live within their means.
sure, it's easy to blame people and there are some who are wasteful in their spending, but it's more likely
that people have difficulty living within their means because wages haven't kept up with the cost of living since the days of nixon.
so why fix the system, why advocate for a living wage, why reform tax expenditures, when it's so much easier to blame people. after all, the poor are poor because of character defects, right?
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