How is a credit card minimum payment calculated

how is a credit card minimum payment calculated

When you are disciplined enough to pay the balance in full, a credit card is a useful tool

Credit cards can be trouble. Just ask any of the millions of consumers who find themselves deeply in debt. In most cases, a large credit card balance is part of their burden.

But plenty of financial advisors point out the advantages of paying for everything with a credit card instead of cash or a debit card. A credit card is more secure than a debit card and, if you have a card offering rewards based on purchases, you can rack up discounts on future purposes.

Consumers with low rate, high balance, caught in trap

Thousands of Chase credit card customers have gotten some bad news this month. The bank has informed them that the minimum monthly payment on their accounts is being raised from two percent of the balance to five percent.

That might not sound like a huge increase, but for many who are carrying large balances and are tightly budgeted, its a severe and unexpected blow. Kay, of Pottsville, Pennsylvania, said she contacted Chase and was told the change in policy was related to the poor economy.

I was told I could possibly re-negiotate a lesser monthly payment but my interest would go from 3.9 percent to 21.99 percent. I was told that out of over a billion credit card holders 850,000 were effected by this change, she told Consumeraffairs.com. My monthly payment from my four accounts will go from $961.00 a month to $2394.00 a month. Needless to say I will not be able to make these payments and will end up defaulting on my accounts and probably claim bankruptcy.

The change in minimum payment has little to do with how long customers have been Chase cardholders, or their credit ratings, though in an analysis of complaints to Consumeraffairs.com in the last few days, many customers do seem to have one thing in common. They all mention that they took advantage of a previous promotion and signed up for a Chase credit card, with the promise of a low, fixed rate for an extended period of time.

In the past year I took advantage of balance transfer offers with their life-of-the-loan low interest rate offers of 5.99 and 6.99, Wendy, of Cardiff By The Sea, California,

told Consumeraffairs.com. I basically used the card as debt consolidation this year in lieu of the economy, wanting to close some other accounts and just use the Chase card to pay this amount down. I am horrified at the new five percent minimum! This will increase my payment by about $475 a month.

Dana of Dacula, Georgia, also took advantage of the promotion and transferred money to a Chase account at 4.9 percent. In August her minimum monthly payment goes from two percent to five percent.

This could put me in default since it would cause my payment to more than double each month, she told Consumeraffairs.com. I do not want to use the card, I just want to pay it with the terms I agreed to when the card was issued.

With new credit card rules on the way, thanks to changes by regulators and legislation passed by Congress, lenders are preparing for a new consumer lending environment. By increasing its minimum monthly payment for customers with low, fixed interest rates, Chase recovers that low-interest money faster, and can loan it out again at much higher rates.

The new credit card rules that go into effect next year prevent lenders from arbitrarily raising interest rates, but do not address the issue of minimum monthly payments. In fact, regulators in the past have encouraged lenders to increase the minimum payments, so that consumers pay down their balances faster.

But a number of consumers who thought they were doing the smart thing — transferring large balances to cards with locked in, low rates, are finding themselves in a trap. The increased minimum payment is now unaffordable. The price of keeping their payment the same is to give up that promised low rate, so that more of their monthly payment goes to interest each month, not paying down the principal.

Thousands of Chase credit card customers have gotten some bad news this month. The bank has informed them that the minimum monthly payment on their accounts is being raised from two percent of the balance to five percent.

That might not sound like a huge increase, but for many who are carrying large balances and are tightly budgeted, its a severe and unexpected blow. Kay, of Pottsville, Pennsylvania, said she contacted Chase and was told the change in policy was rel.

Source: www.consumeraffairs.com

Category: Bank

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