Credit Card Companies Raise Minimum Payments

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Under pressure from government regulators, banks are raising the minimum payments cardholders are required to make each month. The move is intended to reduce the nation's long-term debt; but in the short-term, consumers are feeling the pinch when the credit-card bill arrives.


On Fridays, our business segment focuses on your money and today we'll talk about new rules for minimum credit card payments.

Many people have begun to see changes in their monthly credit card bills. Under pressure from government regulators, banks are raising the minimum payments that cardholders are required to make each month. That is intended to help Americans reduce their long-term debt. In the short term, however, the higher payments are causing hardship. NPR's Adam Hochberg reports.

ADAM HOCHBERG reporting:

By some estimates, as many as 35 million Americans make only the minimum payment each month on their credit cards, a payment that can be as low as 2 percent of the total balance. And for many of those people, it's a struggle even to come up with that.

DEBBIE(ph): I'm just getting by, just trying to make that payment, and just surviving.

HOCHBERG: This woman is one of those 35 million, a municipal worker from Mt. Airy, North Carolina. She asked us to refer to her only by her first name, Debbie, to protect her financial privacy. At 52 years old, Debbie was left with $8,000 in credit card debt after a divorce and was able to pay only the minimum of about $160 a month. So it was a crisis when she opened her recent Visa bill and saw her monthly minimum had gone up more than 40 percent.

DEBBIE: It was a big shock and, of course, I was so angry at first. It's just, I wanted just to not even pay it because I felt it was unjust.

HOCHBERG: Debbie didn't know it at the time but she was among the first people affected by an industrywide change in the way banks calculate credit card bills. The effect of the new rules will vary from person to person, but most consumers will see their minimum payments rise. Credit counselor David Rodick(ph), who's now helping Debbie manage her debt, says the new minimums will strain many budgets. At his non-profit counseling agency, Rodick says most clients are barely paying the minimum now.

Mr. DAVID RODICK (Credit Counselor): There's a large group of people that have in their budget to make those minimums based on what the minimums have always been and now we're going to see a 50 percent or a 100 percent increase in the minimum and they don't have it in the budget to do that. And I'm expecting that, for a few months, they'll be able to handle it, but then they'll realize they can't pay everything.

HOCHBERG: The push to raise monthly minimums was sparked by federal banking regulators, who say, despite the painful short-term impact of the change, it will help consumers in the long run. Regulators were concerned about Americans' increasing debt load, worried that banks were loaning too much money to cardholders and not demanding enough back each month. Nessa Feddis is with the American Bankers Association.

Ms. NESSA FEDDIS (American Bankers Association): Regulators were trying to address something called safety and soundness of financial institutions that ensure that a financial institution doesn't fail. In essence, it will help ensure that the financial institutions are safer but it will also help consumers pay down their debt more quickly.

HOCHBERG: Indeed, over the past few years, banks have been setting minimum payments lower and lower, allowing customers to stay in debt longer and pay a lot more interest. Consumer advocates say minimums had gotten so low that people who paid that amount often had little hope of ever getting out of debt. Ellen Schloemer of the Center for Responsible Lending says the new higher minimums eventually will save cardholders thousands of dollars in finance charges.

Ms. ELLEN SCHLOEMER (Center for Responsible Lending): It's sort of like taking medicine when you're sick. You know, you may hate the way it tastes and it may actually make you feel worse for a little while but, ultimately, it's going to make you better. You know, it's unfortunate that people have been victimized by credit card companies, but they're going to be even more victimized if they don't start paying down their credit card debt.

HOCHBERG: Schloemer says people unable to pay the new minimum should contact their credit card issuers. Some companies, she says, may be willing to negotiate more manageable terms. Schloemer also stresses that consumers should use their credit cards sparingly and strive to pay off their full balances as quickly as they can to keep their finance charges from growing ever higher.

Adam Hochberg, NPR News.

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