19 September 2005
Not to mention toil and trouble
In years gone by, if you ran up late fees on your credit cards, it might actually be impossible ever to pay off a balance if you stuck to the minimum required payment, which is one reason why the Feds this year leaned on big banks to increase the minimum monthly payments on credit-card debt. It was widely reported that the minimums would in fact double, from the common industry practice of 2 percent of the balance, to a full 4 percent. This is not necessarily true, although they will certainly increase a bit; the goal is to get these things paid off within seven to ten years even at the minimum-payment level.
I have now seen the first of the new formulas, from one of the bigger banks, and it's interesting. The new minimum payment, starting December 2005, will be 1 percent of the balance, plus any finance charges incurred during the month, plus any late fees, rounded down to the nearest dollar. The example they gave: a balance of $3500 would produce a payment of $35 (1 percent) plus $49.55 (finance charges at some unspecified interest rate), or $84 when rounded down. If there are any late fees, they go on top. Under this bank's old system, the minimum payment would have been $64. (There is a minimum of $15 regardless, and a cap of 5 percent of the balance.)
The timing of this, of course, is perfect, what with the new rules for bankruptcy kicking in.Posted at 6:03 PM to Common Cents