I had read about this in one of the news magazines recently. The government had given the credit card companies two years to put this into action. The reason for the law was for our benefit so we would always pay above the "minimum" amount that we are now given. That way it won't take us forever to pay off a credit card and not just pay the interest, I think. Anyways, from what I read, the amount owed each month would be double what you are used to paying each month.

I just wish that the public was eased into this or, at the very least, that the news would have told us a few months ago that this would be happening.

Greetings, all.

They call it a "credit card" ...

But it's really a "DEBT CARD".

Before you used it the first time, you had no debt.

One minute after you used it to buy something, you were in debt - which you'd have to pay later.

At really high interest rates.

Suppose I lent you $1,000.00.

I told you that you'd have to pay me $180. annual rent on the money.

Would you be mad?

I expect so.

That's approximately the rate charged by major credit card companies.

Or - suppose I lent you $1,000. and told you that you'd have to pay me $280.00 annual rent on the money - approximately the rate charged by most store-issued credit cards.

You'd be even madder, wouldn't you?

If you're paying 2% of your balance owing monthly, that's (approximately) 24% per year, so you'd be repaying peanuts monthly of the principal owing on your regular credit card loan ...

... and going deeper into debt *every month* on your store-issued card.

It seems to me that it would be a good idea to talk to your bank or credit union to see whether you can arrange a loan, at probably 8 - 12% interest, to pay off as much as possible of your credit card balance owoing.

On one condition ...

... that you have common sense enough to refuse to go out and buy more stuff using your credit card.

Several times a year I get a letter from the Canadian agency of a U.S.-based bank making me a wonderful offer - they'll lend me up to $3,500.00. Maybe more, if I call them right away!

When I call to ask their interest rate, it's about 30%.

I tell them that, as I have a fully-secured line of credit at my bank, unused at the moment, on which they'd ask me to pay 4.25% (last time I asked) annual rate of interest, I don't think that I'll be accepting the other guys' offer any time soon.

Learning how money works - an interesting hobby ...

... that pays well!

Enjoy your summer, everyone.

joyful guy ... twenty years a personal financial advisor

erin-
I know that sounds disturbing, but look on it as a blessing. Perhaps it will help you get cured of letting banks charge you large sums to loan you money. Think of everything you put on your credit card and don't pay off that month as a big increase in the price you paid for an item. If you bought a tv for $300 because it seemed like a good price, would you still think it was a good price if it actually cost you $50 more for every year you didn't pay it off?
I'm not trying to wag my finger, because I've been there in the past. But believe me, there's something empowering about taking control of your life by not buying into a lifestyle you might not be able to maintain.

kudzu9 you are absolutely right! I can't wait to get out of debt and will chop my fingers off before i go into debt again!
Erin

erin-
Thanks for not being offended. I wish you the best in getting away from those bloodsuckers.

I still use credit cards, but I pay them off each month. And I've also gotten in the habit of carrying cash (remember that stuff?!): when I'm thinking about buying something and it seems too painful to fork out all that cash, it tells me it's definitely something I don't want to put on a card.

If you have several credit cards to pay off, do you start with the smallest balances and work your way up to the highest knowing that they are all similar high payments?

Marie26,

Some suggest that one make payments above required minimums on the ones that carry the smallest balances.

There's an advantage to that, for getting the full amount owing there paid off means that you have that much more available each month to pay on the next smallest.

It seems to me a good idea, however, to make extra amounts on payments on the account that carries the highest interest rate charge. Wouldn't you rather pay off as quickly as possible a guy who's charging you 20% than one charging you 10%?

Do you know what rate of interest you're paying on each of your accounts?

Unless you "enjoy" a special introductory rate or something, most major card companies charge about 15 - 18% annual rate - but rates on unpaid balances on cards issued by retailers "store cards" usually run 25 - 28%.

Not my cup of tea, for sure. I want my money to work for me - not the other guy.

Thus, in most cases, I'd rather pay off balances owing on store-issued cards first.

Have you talked to your bank or credit union about making you an unsecured loan to pay off some of those balances on which you're paying the highest interest rate? Often it's not more than 12% at the bank, if they agree to make a loan to you, and may be somewhat less, if your credit rating is good.

If you have collateral, e.g. stocks, bonds, mutual funds, insurance policies that have cash value, etc. whose cetificates you have in hand, the bank will charge a much lower rate of interest - probably somewhere 4 - 8% annual rate.

If you own stocks but the account is with your stockbroker with no certificates issued, they may charge you $35. - 50. to issue a certificate but most mutual funds will issue them without charge.

If you have substantial balances on your credit card accounts, the interest cost that you'd save by borrowing at the bank rather than having the high interest rates added to your accounts monthly by the credit card issuers would soon make up the cost of having stock certificates issued.

You'd only want to have stock certificates issued for stocks that you intend to hold for an extended period.

By the way - don't forget. They call them "credit cards", but they are really "debt cards" - before you use one, you're debt free.

Until you've paid off all balances owing in full - you're in debt.

Simple, huh?

Good wishes for getting your money issues straightened out - the sooner, the better. If we may be able to help - give us a shout.

Learning how money works is an interesting hobby ...

... that pays well.

Enjoy your summer.

ole joyful

Marie26,

Suppose you call some of them to tell them how difficult a time you're having, that you can barely keep the rent paid and food on the table, and if you've had some unexpected emergency cost, sickness, layoff, etc. refer to that.

Ask them whether they can reduce the amount that you owe, the rate of interest that they're charging, etc. - that you're trying your best to pay it off, but could they give you a break on the amount, or the rate, etc.

Some will give you a break and not charge interest for a while, reduce the balance owing, interest rate charged, etc.

Try to avoid asking them to reduce the amount that you pay every month, though you don't want to say that in so many words. Give the impression that you're trying your best to keep up the payments, but it's really difficult.

It's in your interest to pay off as much as possible monthly - reducing the amount just prolongs the agony, and the interest cost continues.

If you call, they may reduce the amount owing, or the rate charging, even temporarily.

Which you won't get if you don't ask.

If you do ask, they can only say, "No," in which case you won't be in any worse situatin with them than at present.

You don't ask - you don't get.

Have a great weekend.

joyful guy

Personally, I would pay off the small balances first. That does three things for you:

- It means that card is now ready to be cut up or frozen into a block of ice or whatever you need to do to not use it anymore;
- It means you won't get a bill from them in coming months; and
- It gives you a boost in confidence because, hey, you've cleared up the debt on one card -- you certainly can do it with the others!

You're talking thousands of dollars in debt here. Don't waste your time figuring out how to save a few nickels and dimes between credit-card interest charges.

I have to agree with Steve O that I would probably pay-off the smaller balance cards first rather than the highest interest charging card. Paying-off a card would be a real accomplishment and give me the push to continue working on paying-off the debts. Once some of the lower-balance cards are paid-off then I would start paying-off based on the interest rate.

I try to pay using cash whenever possible. I carry one CC with me (usually use for gas) and keep one at home for on-line/phone orders. I have real peace of mind knowing that I don't carry a CC balance.

Erin it will take determination (and learning to say NO) to pay-off your cards but you can do it!

Erin,

If you pay 2% per month, that's 24% per year, more or less.

But major credit card sompanies usually charge 15 - 18% - so 3/4 of what you are paying goes to interest (apart from any extra fees).

If you're talking store-issued cards - they usually charge 25 - 28%.

So you'd owe more at the end of the year than at the beginning!!

Try not to put more stuff on the card(s) unless it's absolutely essential.

And I'd suggest going on austerity financial menu for a while, to really try to get those balances owing reduced sbstantially.

With a bit of a splurge (not too large!) occasionally so that you don't feel overburdened.

Good wishes for getting that debt under control - they may call them "credit" cards, but they're really "debt" cards, aren't they?

ole joyful

Have you looked into transfering your amounts to a new card with 0% for 12 months and buckling down and paying like crazy during that 12 months? I know a couple doing just that right now and they (finally!) put their cards in water and froze them. I am a therapist and nearly everyone spends some time getting their finances sorted out as part of the therapy. NOT having your money in good shape leads to anxiety/depression. Myself-I use my card in order to get airmiles for my DD's college flights. I post everything as I charge it AS IF I had just spent cash-then I pay it off on line every few days. It takes great disciple and restraint to see a credit card as helpful/a convenience but as cash that you must have BEFORE you charge rather than as a loan.

I just got my notice from Citibank. I'm going to "opt out in writing" and stop using that card. I had planned on canceling it anyway. My other card is MBNA. From what I read above, I should be expecting a notice from them soon, as well.

Joyful Guy is right...read all of his above posts, I don't feel like re-iterating them again.

Ask for leinence, ask for freedom, ask for no-interest for 6 months. Whatever it takes, but then DON'T F' UP AGAIN!!!!

Thank you, Gina.

If you don't boss your money - it'll boss you!

I don't like paying 28 cents - or even 18 cents - per year as rental on the use of a dollar that I didn't have but had to borrow from someone else to buy something before I could afford it, paid from my own pocket.

They call them "credit" cards - but they're really "debt" cards.

No debt before ya use 'em - in debt immediately when ya do.

o j

(I know this thread is OLD, but didn't want to start a new one on same topic.)

Sorry, this is long...

I first heard about the CC's raising the "Minumum Due" from 2% to 4% about 2 yrs ago (give or take). I wasn't very concerned at that time, since I ALWAYS have paid more than the min due (at least double, sometimes even 4 times min due).

Then several months later I read about it again. This time I was a little more concerned - since we'd had some "emergencies" which resulted in MORE CC debt.

Once all the emergencies were charged to CC's, I sat down and analyzed ALL my open acct's, all my paid off CC's, all my "Balance Transfer Offers", AND, If I didn't have an offer on the other CC's - balance or not -, I called them to see what they could offer.

I charted EVERYTHING: Name of CC's and acc't #'s and Customer Service phone #s (that I already hold), current APR's, Available Credit Limits, Current Balances, Method of Computing to get Min Bal Due on outstanding Balance- (some were a % of outstanding Balance, some were Outstanding Bal divided by 48, and one was a % PLUS whatever the last finance chg was), etc.

Once I had all the info down in speadsheet style, I called all the rest to fill in the gaps - (like on the one's I hadn't used for a long time & didn't have current info)

Once I had all the info, I analyzed it to death! LOL!

I had some GREAT bal trf offers on a couple - BUT OOPS! I have an outstanding Balance on THOSE...

I have THESE offers, not so great, not so bad either - OOPS! Have an outstanding balance there too!

But HERE'S one I haven't used for awhile - no Balance. NOT IN THE SAME "FAMILY" - Fair Bal Trf Offer, high enough credit line, only good for 4 months!

My goal was to get cards A B C D E trf'd (re-distributed) as quickly and cheaply as possible (without opening ANOTHER NEW CC) to cards A B C at the great rates.

I had great offer for cards A B C, fair for D & E - but they had balances on them. Then, had that "other card - M."

Trf'd D to M. Once D trf went thru (& had 0 bal), trf'd A & B to D...once THAT went thru, Trf'd BACK from D to A..., etc.

OK, Now that I KNOW most are COMPLETELY CONFUSED and wondering what this crazy lady is talking about...haha...

Anyway - it took me about 5 months to complete the process (a little long, but I'm slow these days).

It's just a matter of "redistribution" - which can work in your favor if done CORRECTLY. (NEVER trf a balance to a card with a low APR if you have a balance on that card. And, once you do the TRF - DO NOT USE IT A AGAIN until that bal trf is paid off!)

Which brings me to this - another problem: When all done, which card(s) do I need to have freed up for "other emergencies"??? That was a big factor in the redistribution plan also.

NOW GETTING BACK TO THE ORIGINAL SUBJECT AT HAND...

After all my "redistributing" went thru, I had 1 card with a high balance (for ME anyway). I had already planned out that I would pay "X" amount of $$$ towards each card every month, and they would be paid off in "X" amount of months.

When I heard (AGAIN) about the 4% Min Due on outstanding balances, I took a second "look" at my balances - (again, pen to paper to analyze) - and I got somewhat concerned about that ONE with the big balance.

I actually read a THIRD time that by end of 2006, ALL the CC's would be doing the 4% thing!

I called that one CC company and asked when my minimum pymt would go up to the 4%, and they told me it would NOT!

I explained I've been reading about this for a couple of years now, and the last report was by end of year, and I just need to plan for it.

They actually told me not to believe those "scare tactics"! haha!

I was told that this would NOT happen to me, as I am in good standing (pay every month on time, don't go over credit limit, don't bounce checks, etc.), and as long as I keep that up, it will not effect me.

Now this info was told to me around the first couple of months of this year-2006. (Feeling like I need to call again! LOL!)

It's not like I "CAN'T" pay the increase. The problem is that I would have to re-adjust my pay plan - meaning I would have to take some money from the "others" to make the min pymt on this - thus the "others" would take longer to pay off. (The BIG one is at the lowest APR "until paid in full".)

OH WONDERFUL - Now I have to go re-analyze again! But then, I've been doing that for so many years now, that I feel like I am a "self-proclaimed/self-taught debt analyst"! LOL!

Just wondering - anyone out there been HIT with the 4% Min Due on outstanding Balances yet????

Actually one of my CC payments actually went down with the new min payment law.
Old payment 2% of balance was $160 (i always pay $200)
New payment $135 (still paying $200)
The reason the payment went down is Citibank new formula to figure the new payment that includes finance charges and any late fees, plus a minimum payment equal to 1 percent of the customer's balance.
This is a fixed 1.99% apr till bal is paid off so with their new formula my payment went down. I am actually earning higher interest rates on my money market 3.56% last month so thats why I am not paying the bal off.
I have always recommended to people to add the finance charge to the min payment they make each month.
I found a great link at bankrate.com that has the formula that major creditors use for the new payment
karla

Here is a link that might be useful: formulas CC companies use

DH and I have just one credit card apiece (plus a few store cards that we never use). We only buy things we would normally pay cash for, using the CCs as a convenience, and we pay the balances off in full every month. Dealing with all those cards and their "great offers" would drive me nuts. When the offers come in the mail, I shred and toss them immediately.

myfask:
A couple of my CC's also went down to the 1% plus lates +over limits + ...(which I don't have lates or overlimits, so...)
I thought it was "the calm before the storm"!
So far, no 4%.

"harrie" (and all the others who pay off their balances in full every month):
That's great that you can pay off your CC's every month in full.
I am working towards that day. I would LOVE to get back to the "cash only" method.
I just wonder how many would be able to live on less than $12,000/yr without credit cards or welfare.
I worked, then became disabled. I don't go out shopping except for food and NECESSARY personal supplies (no make-up, no beauty salons, no perfumes, etc). I don't go to movies - heck, I can't even go out to dinner.
And holidays/birthday are practically nil. Last Christmas we all got a pair of slippers. (We love our slippers!)

Emergencies are when you have a hot water leak under your foundation for 4 months, or, BEES decide to take up residence in the structure of your house... Thus, the credit card.

As you, I find CC's to be a "tool" of sorts. I use mine for "leverage", You use yours for "convenience"-I'm assuming.

Speaking of STORE CC's - I don't know why anyone would have one! Last I checked, (the ones I checked), they ALL ALSO accepted Visa or M/C, which we all know is lower rates than Store CC's. I dumped ALL of my store cards years ago when I learned this fact :)

What continually surprises me is that so many people apparently believe that the only allowed choice is to pay the specified minimum. I understand financial difficulty can occur, but I know people who have plenty funds and they still pay the minimum. Is it a psychological thing? The minimum is the stated "payment due" amount, so that is what is sent?

"...What continually surprises me is that so many people apparently believe that the only allowed choice is to pay the specified minimum..."

People actually believe that they are only ALLOWED to pay minimum?!!! YIKES!
Yes, financial difficulties (temp) are understood.

I've actually paid minimum on a CC in past. I had "auto-pay" on that card, so basically it just got "ignored" for a few months.
WHY? I was concentrating on paying off other credit cards. (But then, that's different.)

I also had $$$ in bank - COULD have paid ALL CC's off, but that would pretty much deplete my immediate liquid assets, thus leaving NOTHING for emergencies - (such as a note informing that landlord sold house and "you have 30 days to move!")

I've always been on slim, so learned early to make sure I had "emergency funds".

I'm sure it varies from person to person.

However, IF there are people out there who believe they are only "allowed" to pay the minimum - my personal feeling is that they don't have any business having a credit card!

But then, that's their business, not mine :)

I've always found it remarkable that people can make CC payments on cards after they've run up "emergency" charges, but for some reason they weren't able to save any money before the charges. Couldn't savings have come from the same place as the credit card payments are now coming from? If you don't have any savings, you need to consider that an emergency and do something to increase your earnings or decrease your expenses.

I was curious to see how much of a difference it would make if you paid off a high balance card faster or the smaller balance card faster. I assumed two cards with balances of $10K and $2K and annual rates of 24% and 12% respectively.

Assuming that you paid $300/month on the first card and $200 on the second card (trying to pay it off quickly), you'd pay off the second card in about a year and after two years would owe $4,329 on the first.

If you paid $440/month on the first card and $60 on the second, after two years you would owe $3,077 on the first and $971 on the second for a total of $4048.

So after two years, you'd still be hassling with two payments but you'd be $280 less in debt.

Of course, the savings would vary depending on the relative amounts owed and the rates. As a general rule, I would think that it would always be better to pay down the high rate card faster. Some exceptions would be if the rate difference was small or the low rate card was so close to payoff that the hassle savings was relatively significant.

markbarbieri, I'm assuming that was directed at me about running up emergency charges?

"I've always found it remarkable that people can make CC payments on cards after they've run up "emergency" charges,..."

First, we didn't "run up 'emergency' chgs". We had only lived in the house for about 4 months. We had a hot water leak under the slab foundation that took us four months to realize what was going on. Not only the pipe had to be fixed, but the water and gas bills were to the tune of $500.00/mo for 4 months. Our homeowners' insurance would not cover it unless there was actual "structural damage" - (what a joke - I wanted to take a hose to the kitchen to provide "structural damage", but quickly dismissed that idea.) Our "Home Warranty" covered about $600.00 only.

Yes, I could have paid cash for the whole mess - which would have pretty much depleated my "safety net savings" - leaving very little for anything else.
Good thing I charged it...because about a year later "bees" decided to make home in a structual wall outside our front door. Another $1000.00 just to kill/remove the bees & honeycomb (properly). We still have a hole in the wall that needs to be patched up - another good sum of $$$ for that.

"...but for some reason they weren't able to save any money before the charges..."

Had savings...Wanted to SAVE my "SAVINGS".

"...Couldn't savings have come from the same place as the credit card payments are now coming from?..."

No, saving would have been depleated. CC pymts could either be paid off or spread out to something more easily managed. At least I have some control over how much I can pay every month and still be somewhat comfortable for a few months if something were to happen to DH. (Besides all that, I get more interest on my savings than the finance charges on my CC.)

"...If you don't have any savings, you need to consider that an emergency and do something to increase your earnings or decrease your expenses..."

Ummm...have savings - that's emergency. Hard to increase earnings when UNABLE to work...hard to decrease expenses when you've cut back on or eliminated just about everything, and prices keep rising on the basics. (phone, utilities, gas, food, medical...)

I must have posted something that got you all riled up - (I'm good at that - altho not intentional). We all have our different ways of handling things.

Now, back to the OP: ERIN, Has that minimum pymt affected you yet? If you tink the 4% minimum due is scarey - watch for my post of "CC TRICKS" - it's even scarier!

What I have opted to do is to pay double my minimum every month and get this card paid off pronto. I have only one card and that was intentional. I get those silly offers every day and trash them.