Posted on 02/01/2006 1:08:55 PM PST by ex-Texan
The big players have raised minimum payments from 2% to 4% of your balance, meaning you'll get out of debt much quicker. Here's how to cope until that day.
Good news: Credit card companies are doubling their minimum payments.
Bad news: Credit card companies are doubling their minimum payments.
Huh?
So far, MBNA, Citibank and Bank of America have announced they are doubling minimum monthly payments on credit card balances from 2% to 4%. Others are expected to follow suit quickly. To some cardholders, that could be seen as a good thing. To others it could be devastating.
If you can handle the increased payment it's good. Let's face it, if you pay only a 2% minimum each month, your debt would probably last longer than most marriages. Doubling your minimum might put you back on the financial straight and narrow. Ostensibly designed to help consumers get out of debt faster, the increased minimums will force cardholders to pay off fees, interest and at least a portion of the principal each month.
Why it's happening Over the past few years, low minimum payback rates of between 2 and 2.5% have encouraged Americans to spend, spend, spend -- and to rack up an average credit card debt of close to $10,000 per household. For the estimated 40% of cardholders who carry a balance from month to month, the low minimums free up cash. But paying off a big charge little by ever-so-little also means that a $1,000 debt can turn into a 22-year commitment -- and that you'll accumulate thousands more in interest in the meantime.
(Excerpt) Read more at moneycentral.msn.com ...
It save me a big chunk of change, once, and I wasn't paying anywhere near 30%. The real money saver, of course, is not charging more than you can pay when the statement shows up.
Do people who write these type of articles really think that people who are living paycheck to paycheck and paying the minimum on multiple credit cards will EVER get out of debt ... even if they raise the minimum ?
I noticed that they never mention looking at what the item will cost before you charge it, not per month, but over the 10 years it would take you to pay for it.
That giant screen TV will probably be obsolete before you finish paying for it, and you will pay twice the outrageous price for it !
You may still be paying for it after it's replacement ( that your ex took with her ) has become obsolete !
Because, for better or worse, it can turn an unaffordable monthly payment into an affordable one. While over the long-term it's often not the financially smartest thing to do, there are people who are in over their heads and faced with either doing what you mention above, OR, filing bankruptcy, OR, living as a slave to MBNA for endless years. $2000 a month of credit card payments can be turned into $400 on a home equity loan. Regardless of the other risks, sometimes it's a matter of can afford vs. can't afford. No point lecturing about the "woulda, coulda, shoulda" of finance, people can't undo what they've done, all they can do is fix it the best they can, and not let it happen again.
Yes, but it doesn't usually lower the payment. While it's better than the alternative, if a person's main issue is simply not being able to make the payment, the interest rate is moot.
Good formulas.
Max out all your cards and then ignore those nasty phone calls, letters, etc....Works for me....
My response is the writer must know people who are in that terrible situation. Common sense tells me that must be true. Otherwise, why all the recent 'refinance your home now' hype blaring over the radio 24/7?
Yes, but I've known people to fall behind on their house because of high credit card bills.
Before: $800 mortgage, $800 credit cards = $1600/mo
After: $1008 mortgage, $0 credit cards = $1008/mo
Now, ASSUMING their new mortgage payment in such a scenario is well within affordability for them, it's not a bad option. The problem arises when their new mortgage is $1435 and they only bring home $1100 every two weeks and can't make a single payment with one paycheck.
"...and went with a single debit card accessing my checking account. "
Nope, use the credit card and pay it off, some offer free extended warrenties, some cash back and/or airline miles. It's also much easier to refute a CC transaction ( YOU still have the money ) rather then a debit card where THEY have your money.
The costs of all this is built into the price already, why toss it away by paying up front ?
One of them went up only 5 bucks, the other, I think was 3 bucks.
"Otherwise, why all the recent 'refinance your home now' hype blaring over the radio 24/7?"
Refinancing makes sense even if you don't owe a dime, why pay them more then you have to ?
... and the blaring refinance ads purpose is to make the refinance outfits money.
How about all those ads for cash advance places ? ... that's a really sorry situation.
What really amazes me about the way people spend is the money they shell out to eat out. Learn to cook, eat at home! I can remember a time when eating out was a big deal, a great treat--
Rather than rolling up the credit card debt into a new mortgage, thereby increasing the likelihood of losing their home in the process, they could simply make their existing mortgage payments and dole out any remainder equally to credit card lenders.
The worst that will happen is a bad credit rating (likely in any event in such situations), reducing their ability to get into more debt. The credit card issuers will kick it over to a collection agency...if not paid, the debt will be written off. I don't recommend nonpayment. Just noting that a written off credit card debt is far better than a house taken away in a mortgage foreclosure.
I've yet to see a deal where it made sense to convert credit card debt into increased secured debt on the roof over one's head. Then again, I'm neither a mortgage broker nor do I work in a bank's mortgage department so I don't have a financial stake in refinancings, 2nd mortgages, HELOCs, etc.
Um... no it didn't.
We use our cards rarely, and pay the full balance every month.
Generally, if we can't afford it, we don't buy it.
One way he put his belief into practice was that he had the family homestead paid off in 7 years in spite of having a wife and 4 kids to support.
As a result of his lesson,I always pay off my credit cards,in full,every month.
My credit card bill remains unchanged - 100% each month = no interest and no hassle.
It's the only way to go. And make sure you get credit cards that pay you some sort of dividend.
I agree with that.. I have Bank of America and mine jumped from 53/mo to 129/mo.. of course I was paying off more than the minimum anyways and as a percent I'm sad to say that's not very much still... no where near 4%. That darn debt I racked up in College.. gotta pay for all that fun now.
How is that a problem?
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