Double the minimum and half the gifts?
November 26th, 2005 | by
mbhunter |
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Credit Card Victim recently posted a link to another debt reduction blog of sorts, Credit Card Blues.
He made a strangely-crafted post that leads to some valuable information:
2005 — Year of the BLACK CHRISTMAS
The post talks about how banks are raising the minimum payment due on credit card balances and how it’s going to cut into retailers’ bottom lines. He then includes some information about US credit statistics and how the new laws, in concert with some other laws like the Massachusetts homestead exemption, are pulling the rug out from under a lot of people who are just making ends meet.
All well and good — until you follow a link that he provides in the same post to BreakTheChain.org:
Credit Card Minimums about to Double?
Most of the post on Credit Card Blues is part of a chain letter referenced in the BreakTheChain.org article. Yet he ignores most of the truth in the post, while leading his readers to the truth?! I don’t get it.
In any case, the BreakTheChain article makes, among other things, the key point in how this new law benefits consumers:
The higher minimums mean that you get out of debt faster!
The banks’ profits won’t be bigger; they’ll be smaller. Banks make money from interest. Paying off the credit cards faster means less interest. That’s if the consumers don’t cave in under the new payments. Then the banks eat the loans.
So, it may turn out that some people might not be able to buy all of the gifts that they were planning to buy this year. But these are the same people that probably were least able to afford the gifts anyway.
(Final note to Average John: Open up the comments on your blog so that we can try to help!)
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8 Responses to “Double the minimum and half the gifts?”
By Adult ADD Money on Nov 26, 2005 | Reply
I wasted five minutes reading Average John’s blog that I will never get back. He sites statistics that are at best questionable and I noted a couple of math errors when he tried to calculate the change in the minimum payment on the average US household Credit Card debt.
By Kassy on Nov 26, 2005 | Reply
I wanted to comment on Average John’s blog too, but couldn’t so I’ll comment here:
Good luck with writing the letters. My boyfriend tried that with W. Fargo since he’s been out of work for a year, he tried explaining how he had no income and no one to borrow from. CCCS wanted him to pay a monthly fee which of course he can’t. The upshot was that W. Fargo wasnt interested, they still want their 800 to make the account current before they will consider any kind of debt repayment plan. I’m not sure what my bfriend can do if W. Fargo isn’t willing to work with him before the account becomes current. Anyway, I wish you luck in your endeavors.
By mbhunter on Nov 27, 2005 | Reply
Thanks for your comments. Average John’s situation’s a bit sad. Sixty-two years old and struggling with credit card debt. On the face of it he seems to be needing help with his finances but it’s hard to give it to him if he’s already in the victim mindset.
By jaed on Nov 28, 2005 | Reply
The higher minimums mean that you get out of debt faster!
Er, no. Higher minimum payments are either neutral (if you have only one card you’re paying on, or if the interest rate on all your cards is equal) or make repayment take longer (in the more common situation where you’re paying cards with differing interest rates).
The fastest repayment strategy is to pay the minimum on lower-rate cards and as much as you can on the highest-rate card. If the minimum on the lower-rate cards goes up, you have less money to pay down the highest-rate card. You will take more, not less time to pay off your cards with this new regulation.
By mbhunter on Nov 28, 2005 | Reply
Hi jaed, thanks for reading and thanks for your comment.
I disagree. Higher minimum payments, as a percentage of the outstanding balance, will result in a faster debt repayment if the interest rate stays the same. Say your balance is $1,000, and you have a 12% annual rate. The interest after one month is $10. If your minimum payment is 2% of the outstanding balance, you’ll have to pay at least $20, and your balance after one month (if you don’t charge anything else) will be $990. If instead your minimum payment is 4% of the outstanding balance, you’ll have to pay $40, and your balance will be $970. The higher minimum means you’re paying more principal with each payment.
If you have multiple cards, you’re paying them all off faster with higher minimums.
By Adult ADD and Money on Nov 29, 2005 | Reply
MB
You missed jaed’s point, his point is that if you only have a fixed amount each month to pay your debt, you will have less money to pay down the debt with the highest interest rate, costing you more money in the long run.
By mbhunter on Nov 29, 2005 | Reply
Ahhhh … ADD you’re right. I see the point. Jaed sorry I missed the point you were making. Read your comment too quickly. Oops!
Notwithstanding my oversight, if you’re paying ONLY the minimum on ALL your cards, the increase in the minimum payment will mean you pay the debt off faster. It depends on how you’re paying off the debt. Of course, if you never carry a balance, it doesn’t matter in the slightest.