2005-08-05 / Columnists

Notes On Consumer Affairs

By Assemblywoman Audrey Pheffer


Audrey PhefferAudrey Pheffer Few people relish receiving their monthly credit card statements in the mail, and now, thanks to recent news, that already small number will probably decrease. Several credit card companies, including MBNA, Bank of America, and Citibank, have announced that they will be doubling minimum monthly payments on credit card balances, from the previously required two percent to four percent.

For the last few years, minimum payment rates have been set at between two and two and a half percent, and many speculate that these low rates have encouraged customers to overspend and accumulate revolving debt. The newly increased minimum monthly payments were intended to assist consumers to pay off their revolving debt more quickly and decrease the amount of interest they pay over the life of their debts.

On average, American households carry roughly $10,000 in credit card debt. For the estimated forty percent of cardholders who carry a balance on their credit cards, low monthly payments are a convenience that allows more flexibility in their budgets, but paying only the minimum payments has its consequences. For example, if a person charged $2,000 on a credit card with an eighteen percent interest rate and paid only the minimum monthly payments, the cardholder would end up paying an extra $5,000 in interest, and it would take about thirty years to pay off the debt! On the other hand, by making the four percent payments, the cardholder would pay off the debt in ten years and would only pay about $1,100 in interest.

However, for those who are barely able to make the minimum payments on their credit cards at the current minimum payment rate, this news may seem like more of a hindrance than a help. If you anticipate that you may be unable to make the new minimum payments, financial experts recommend that you call your credit card company before problems arise. Sometimes companies are willing to renegotiate payment plans, or they may even lower your interest rate. However, if you call your company after you have made late payments, or if you have paid less than the required minimum payment, the credit card companies may not be as lenient or sympathetic. In fact, if you pay your credit card bills late, your credit card company may increase your interest rate, and that card might not be the only one. Many credit card companies increase the interest rates on their customers’ credit cards if their customers are late in paying any of their other credit card bills.

If you are concerned about finding the extra money in your budget to pay the increased credit card bills, you may discover that the cash is easier to find than you think. Many people learn that small, daily changes can yield big savings over time. Instead of buying your coffee and buying your lunch, consider making them yourself and bringing them to work. Instead of purchasing books and renting movies, think about visiting your local library. Some financial experts say that such changes can help consumers free up to ten to fifteen percent of their income.

If you feel that larger changes may be necessary, you may want to visit a credit counselor. For more information, visit the Association of Independent Consumer Credit Counseling Agencies’ website at http://www.aiccca.org , or visit the National Foundation for Credit Counseling’s website at http:// www.nfcc.org . This website also contains information about use of credit, and money and debt management, in addition to offering information about credit counseling services.

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