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Credit Card Minimum Payments Increase

Having to pay double the minimum payment of credit cards in the new year is a scary though for many American`s. With many US residents in debt, this does not seem like a helpful way to ensure that consumers will manage to dig out. Currently it is difficult for many to pay the minimum, then why raise it? Well, in actuality this is not going to be the case. While the government is requiring credit card companies to increase monthly minimum payments, the goal is to help credit card customers pay off balances without undue hardship. Specifically, where most credit card issuers previously required customers to pay off 2% of their outstanding balances each month, most will now require customers to pay all monthly interest and fees, plus 1% of the outstanding balance.

What does that mean for monthly payments? Significant monthly increases will occur in only the most extreme cases, those in which very large credit card debt is combined with very high interest rates. Even then, the result is not as scary as you may think. The upcoming change in minimum payments is a result of guidance from the government?s Office of the Comptroller of the Currency, which told banks they must require minimum payments that allow customers to pay off their debts in a reasonable amount of time. Under the current industry standard two percent minimum payment, customers with high balances can conceivably ?meet the minimum? without even paying off a full month?s interest, much less taking a chunk out of the principal balance.

For example, imagine a person with a $10,000 credit card debt and a 19% annual interest rate, both higher than the average consumer is carrying. Using the 2% minimum balance calculation, this person would have a required monthly payment of approximately $203.16. Under new requirements, the monthly payment would be $258.33. This is a difference of roughly $55 ? on a balance and interest rate that exceeds what the average consumer is carrying. Most credit card customers will have much smaller minimum payment increases, if any.