U.S. Credit Card Payment Hike

The BBQ Pit
1

CNN tonight said the U.S. government aims to increase minimum payments on credit-card debts by at least twice the minimum now. CNN’s editorial (I presume and hope it’s an editorial) take on it is that doing so would be an attack on the middle class, especially in a time of war and at a time of an unprecedented natural disaster. The attack-on-the-middle-class term, along with a logo saying Attack on the middle class, suggest that it’s a given, that increasing the minimum payments are just the latest example.

The CNN reporter, whose name escapes me, said this attack will be all the worse because new laws make it nearly impossible to declare bankruptcy. Questions were put to another reporter — who said he has no answers — asking, repeatedly, what do they (the government? the White House?) think they’re doing, considering Iraq, Katrina, the high cost of housing, the low cost of mortgages that attracted many thousands of buyers who now will be stuck, medical costs, etc., etc.

If I recall correctly, CNN cited $9,000 as the average credit-card debt, with the minimum payment on that amount to be set at $294.

So, what do you think that they think they’re doing?

2

I didn’t see the report in question, but it strikes me that of the $294 payment on a $9000 debt, the majority of that amount is interest on the principal. The actual minimum principal payment is actually quite, quite, quite low. Low to the point that making only the minimum payment results in a very, very, very, very long payoff period. If the minimum principal payment is doubled, that would significantly reduce the payoff period, while affecting the overall payment by only a small amount.

Actually, I’m surprised that our government would push such a program as it would lower total revenues for their good buddies in the banking industry.

3

There are a few (VERY few) circumstances where it is sensible to maintain a credit card balance for more than an extremely short time, but given that so many people run up major credit card debts simply because they want the newest and bestest toys NOW, I have major difficulties getting concerned about any rules increasing the minimum payment. A higher minimum payment is going to make it harder to run up massive credit card debts, which is A Good Thing ™.

Those very few cases where running up a massive credit card debt is the only recourse (e.g. your infamous American medical bills) need their own separate solutions to their particular problems; I don’t accept that minimum credit card payments should be low just because of that.

4

IIRC, the minimum payment on most credit cards is the greater of $20 or 2% of the balance. If you’re making the minimum payment and getting charged the 20-30% “really crappy rate” that you get stuck with on credit cards. odds are that you’ll never pay it off. The interest is actually accumulating faster than you’re paying it off.

5

We got sucked into the “Plastic lifestyle”. True, medical expenses are a major, if not sole, reason some folks have to resort to bankrupcy. And the law doesn’t apply to them, AFAIK. And if it does, you can bet your ass that the outcry will soon have that changed. Keep in mind, doctors and hospitals cannot turn you away from needed medical care. (Yes, I know it happens. They are prosecuted.) Now, if you’re lucky enough (or unfortunate enough) to have a high credit limit to pay for the latest and greatest in treatment and drugs, you’re still making the decision to buy those on good faith. (Credit)

Anyway, most people in credit card debt are like me. I saw the MasterCard as $10k in purchasing power at Best Buy. (Hell, I used it to buy a convertable!) I never thought of the 15 years it would take to pay off the debt. Completely irresponsible, of course, and it cost me. (Well, us. My wife was affected as well.) I noticed something, though. The higher our debt ceiling rose, the more credit offers we got. It got to the point we were taking cash advances on Discover to cover monthly bills so we could pay MC and Visa.

So what happened after running up insane balances on the 10k Sears, 3k Wachovia, 5k Bank America and 5k First Bank cards? We were issued, with online applications, a 2k Sam’s Club, 4k Target and 4k MBNA cards. :confused:

We have a gross annual income of about 60k. Where the fuck was the money coming from to pay it all off?

Again, it was mostly my fault. My bipolar was undiagnosed at the time, so I was given to flights of fancy that I’d somehow, someway pay it all back. But delusions of grandeur don’t sign and mail checks that will be covered. They (supposedly) took into account the income, payment history and credit lines open when issuing the credit. It’s a two way street here.

Am I angry at the draconian laws taking effect? Yup. Am I also angry at the outrage of the credit card companies? Bet your ass on that one. But here’s what really chafes my ass.

The “Gimme Now!” expectations of the American consumer. My dear departed millionaire great-aunt still bought her furniture on lay-away. She had a strict budget that shunned credit. You get it when you buy it. It’s not fun when your friends and neighbors have the latest and greatest, but what you have, you own. I can’t see that as a bad thing today. There is little chance any of us will ever experience the hardship of the Great Depression. And yet we complain if our car is more than 3 years old. Or we don’t have HDTV. Or we can’t take that cruise to South America.

And how do we answer those deficiencies in our lives? We charge it. Often to the point of no return.

Fuck, I’m starting to sound like a socialist, I better stop now. If Tyler Durdin ever runs for world dictator, I’ll join the army.

Point is, in most cases I put the blame on the debtor as much as the creditor.

6

I didn’t know the federal government had the power to do something like this. Why do they have this power? I know there are limits on the interest that cc companies can charge, but I always thought cc companies decided what the minimum payment would be.

I’m not whining about it, I don’t have any cc debt - I’m allergic to interest payments. :slight_smile: However I do think that it’s not fair to people who went into a cc card agreement expecting one thing only to have that change rather drastically without any recourse.

7

Every credit card agreement has a clause stating that the CC company can change the conditions of the agreement by just notifying you in writing.

It really is a good idea to pay twice the minimum payment but in a way this will force some people to think about CC debt a tiny fraction of a second before getting a card and using it.

I seem about average in debt and a little higher in payments.

8

I think this is a good thing. People need to make some progress in paying off credit card debt, not simply paying interest plus $2 every month. This law is a benefit to the consumer, not the credit card company.

Of course, I never carry over a balance on credit cards, so really; ‘taint nothin’ to me…

9

You’re right, it IS a good idea to pay more than the minimum. So is having money in savings, and having health insurance in case you’re badly hurt. But let me ask you this-- if you think paying twice the minimum is a good plan, would you pay four times the minimum? If you’re not a credit card user, imagine it for house payments, car payments, whatever.

What kind of increase would it take so that in order to pay just the minimum on your debts, you would have to give up everything but rent/mortgage, car payments, bills, and groceries? When every bit of entertainment, from renting a movie to going to a fast-food restaurant to your Straight Dope membership, has to be budgeted into a tiny scrap of leftover income? If you can imagine it, then you’re imagining my life. (My debts aren’t that huge, but my income is smaller now than it was when I got the debts.) I don’t have savings or health insurance, because the chunk of income I would use for that-- is paying for old debts.

Now that you’re imagining this-- what happens if that debt repayment goes up $50 a month? Where do you take $50 from-- do you move to a cheaper apartment, eat less, decrease utilities, sell your car? How many times can you do this, how much can you cut out of your life in order to try to pay your obligations?

And what if you cut out your health insurance to pay more on your debts, then get hurt and need medical care-- doesn’t that seem likely to put you further into debt? If your spouse gets hurt and you need a week off work, won’t you need your savings?

Sure, most people could stand to cut something out of their lives and put the money where it’ll do them some good-- but taking the decision out of people’s hands and making them put it on their credit cards may not be the best option there.

Corr

10

You know, the “nanny” in me says it’s a good idea. A higher minimum payment will encourage people to spend less on their cards, many people spend until the minimum payment becomes the troubling factor. If you raise the minimum, people will get into less debt and be better able to manage that debt. It will also, hopefully, reduce the number of people paying all their disposable income to CC companies for interest, and instead put that money into products and services.

People in Corrvin’s situation will be hurt, but it should be easy to gradually implement this, apply the low minimum to existing debt, and the high minimum to new debt. That will at least reduce the pain.

OTOH, studies have shown that the majority of bankruptcys are due to unforseen factors like divorce, job loss and medical bills, not (directly) overspending. Rather than reducing bankruptcy, so much, you’re really just preventing people from running up their CC debt. Couple that with my “adults don’t need nannies” side, and I say you should let the market do what it wants.

11

I would be in favor of this only if it didn’t apply to existing debt. I don’t want to put people in an impossible position. Enough people are living on the edge.

However, I think it is true that CC companies take advantage of people who don’t understand finances and don’t realize that minimum payments are really never going to get them out of debt. I think it’s predatory. Unfortunately, we just don’t prepare our young people for the reality of the financial world.

I do, however, think the new bankruptcy laws are pretty much just tailored to lobbyists’ requests on behalf of this industry, and don’t give people a chance to rebuild once they’ve screwed up. Most credit card companies don’t seem to be willing to deal with reduced interest rates or payment plans to help you if you’re in a period of financial hardship unless you’re at risk for filing.

12

Here’s a little bit more info on this:

http://www.themonroetimes.com/o0909pcr.htm

Apparently if you are already in credit counseling, the minimum payment hikes won’t affect you, but it will affect almost everyone else by the end of the year. The payment hikes are in response to pressure from federal Office of the Comptroller of Currency.

13

Sadly, I think this is a very good idea. As the US savings rate drifts into negativity and interest rates steadily climb, heavily leveraged people are on the verge of a major disaster, especially if they use home equity lines of credit to pay down credit card debt. Though this law will put the squeeze on many people to change their spending habits, it very well could stave off serious catastrophe later.

I suspect that the effects on the credit card industry balance sheet and income statement will be neutral. Issuers will lose some spread revenue, but this will be offset by having to borrow less to fund the receivable and a decrease in their net loss provision.

14

:smack: Oh yeah, I knew that.

15

Keeping in mind that I’m pulling this out of my ass…

For some reason, I think that minimum payments in Canada are 4% and not 2% of the total already - I never actually pay the minimum, so I don’t really know for sure, but 2% seems really low - like if you’re paying 2%/month on a card that charges 28%/year interest the balance will never go down - you’re not even servicing your debt - it continues to rise even if you make no more purchases.

Isn’t that correct? Have I got the math wrong? If I am correct, the minimum payment increase seems like a good idea if only to save people from themselves. That being said, if you’re bairly making your payments now, an increase would be a hardship, for sure.

16

I can also attest to the ease to which one can slip under the surface when it comes to credit card debt. I have been lucky, in that it has not cost me anything, other than my credit rating (is that irony?)

I finally bit the bullet and procured a loan to pay off all my debt (about 14k). I will be paying this out over the next 36 months, but in the long view I will come out WAY ahead. The added bonus, is that in the short term I will actually end up with more money actually In my account. I hope to even start a money market account with the added funds… as every little but helps. Now my only problem is not succumbing to the dark side yet again…

OOOOO… lookit da purty big TeeVee… me must have purty purty thingy… sooo shiny… OOOO lookit da new shiny bauble…

I think I should have the wife carry a blackjack only to be used in times of duress… such as a sale at Cambridge Soundworks.
BTW: first post!! So many months (years?!?) of lurking… ended because I like to whine about my self inflicted credit wounds.

17

Checking my credit card history, my minimum payments appear to be about 3% (though my total was small enough to bump that up to the 10$ minimum quite often, so perhaps my data is wrong).

Credit card companies will love you if you only pay the minimum amount, 'cause you’ll be paying them 'till the end of time. There have to be ways to avoid that - my dad is a bankruptcy agent, and by far the biggest common denominator in a bankruptcy is the client has a stack of maxed-out credit cards a foot tall. (Part of the reason I pay off my single credit card in full every month).

18

So, didja pay for your membership with a credit card, or just bust open the piggy bank?
:smiley:

19

Luckily PayPal takes all manner of payments… credit, debit, blood, hair, furniture, offspring, pets…

20

I have 5 credit cards, only two of which have a balance on them right now. Some require a 2% min, and others have a 4% min. One of them started me out at 4%, then dropped to 2%. I’m still paying 4% (even though the interest is still in the 0% intro period), because I had already budgeted for that amount and want to pay it down before I die, thankyouverymuch.

This law won’t really affect my budget, but here is the problem I see with it:

Most credit counseling programs tell you to put as much as you can toward the highest-interest credit cards first. If you have $500/month to pay toward debt, $200 of which is needed for the minimum payments at 2%, you can put the extra $300 toward the card with the 23% interest and let the card with the 11% interest sit for another month. If you have to make the 4% payments to everything, that extra 2% will be taken out of your budgeted $500. Maybe it’s only an extra $50 you won’t be able to put toward the higher interest card, but that’s an extra $600/year.

Who is this law benifiting?