Credit card minimums will increase
Staff reporter
Consumers who use credit cards for groceries, gas, and Christmas gifts may think twice before sliding the plastic.
By the end of the year, credit card companies will raise minimum payment requirements in an effort for consumers to pay off their debts sooner.
Companies are increasing minimum payments as a result of new credit card lending guidelines issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
If a consumer pays an average of a two percent minimum payment on a $10,000 credit card debt at 18 percent interest, it will take him or her about 58 years to pay the debt. During that time, $28,930 is paid in interest.
In the 2003 guidelines, regulators did not specify a rise to a specific increase percentage. Instead they recommended minimum payments be set so consumers could pay off their balances in a "reasonable" amount of time.
The amount of minimum payments will depend on the credit issuer. Some are charging a flat rate like $10 plus a percentage of the balance for the minimum payment.
This is particularly bad news for those who use credit cards for paying living expenses due to layoffs or job loss.
It also is on the heels of consumers being tapped dry with an increase in prices of fuel for their vehicles and heating fuel for their homes.
According to USA Today, minimum payments will cover interest, fees, and at least one percent of the principle.
The goal, according to federal regulators, is to get consumers out of debt faster. But for those who already struggle to make their minimum payments, higher payments are not helping matters.
Consumer advisers suggest consumers shop around for a credit cards with low-interest rates, perhaps introductory, and transfer balances to those cards. Another suggestion is to call credit card issuers and ask for a lower interest rate which will reduce monthly finance charges.
Consolidation to a single card also was suggested which would make minimum payments more productive.
Of course, the best advice is for consumers to pay off credit card balances before charging more purchases, and reduce the amount of charges.
