Beware of Falling Minimum Payments

If you opened a credit card statement recently and were pleasantly surprised to find that your minimum payment due was lowered, don't be so quick to "jump for joy". What may appear as a small boost to your monthly budget is actually the rock that can weigh you down in debt for a lifetime.

More and more credit card companies are moving to requiring a minimum payment of 2% of your total outstanding balance. Consumer Action, a consumer advocacy group out of San Francisco, found that the number of card companies with a 2% minimum payment reached 53%, up from 43% just a year ago.

Some creditors have even gone so far as to call this a "consumer friendly" move claiming it will assist consumers faced with today's economic woes. In reality, a lower minimum payment causes you to take longer to pay off your debt to the creditor while winding up paying them more money in interest payments.

For example, let's say you have a credit card debt of $2500.00 @18% annual percentage rate (APR). Your monthly minimum payment based on a 2.5% pay back rate would be $62.50 per month. Oh and by the way, here's what the credit card company really doesn't want you to know - it will take you 20 YEARS to pay off your $2500.00 balance paying the minimum monthly due. And you will have paid the credit card company $3,365.51 in interest!

Now lets look at the same example using the rate of 2% minimum monthly payment. Your monthly payment drops to just $50.00 a month. You might be tempted to think "wow, I've got an extra $12.50 a month to play with, yippeee!". Not so fast! That lower minimum payment now means it will take you 34.5 YEARS to pay off your balance of $2500.00 and you'll wind up paying $6,430.93 in interest!

Consumer Action also reports that many credit card companies are imposing higher late payment fees and "more than a third of card issuers said they will raise existing cardholders' rates because of poor credit histories -- with other creditors -- even if the consumer has made regular, timely payments with that issuer".

My advice is to watch your use of credit carefully, always pay more than the minimum monthly due, and be sure to read the fine print on any credit card offers or changes to your existing accounts.

© 2004, www.yourfreecreditreportnow.com
Author: James H. Dimmitt
James is editor of "TO YOUR CREDIT", a weekly free newsletter. Subscribe to the newsletter by visiting http://www.yourfreecreditreportnow.com.

More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Credit Information:

Related Articles

Understanding Your Credit Score
When you apply for credit one of the first things almost all credit officers do is check your credit score. Although not all of those officers explained to us what a credit score is, we are all rated according to it and the offers we receive were all dependent on that score.
Different Ways to Borrow Money
There are many different ways to borrow money. Outlined below is a useful guide to some of most common ways of borrowing money.
Online, Phone, U.S. Mail or In-Person: Where is Your Credit Card and Personal Identify Safest?
Identity theft is the fastest growing crime according to the Federal Trade Commission (FTC). It occurs when someone takes a piece of your personal information and uses it without your knowledge to commit fraud or theft.
Which Credit Bureau Should I Use To Check My Credit Report?
There are three main credit bureaus in the United States; Equifax, Experian and Trans Union. Each bureau collects your personal and financial information which is then sold to lenders such as banks, credit unions, credit card companies, mortgage and auto loan lenders.
Small Business Credit Cards
So what do you look for when applying for a credit card for your small business? One thing is for sure, wasting money isn't an option because it can make or break your business. Things to look for are low interest rates and good customer service.
7 Surefire Ways To Repair Bad Credit
Do you have a poor credit rating? If so, you are one of tens of thousands of Americans with the same problem. In fact, it seems that this has become a national 'disease.
Credit Repair Scam - How To Avoid Being A Statistic?
A good credit history is critically important for the consumer. A bad credit will prevent you from getting a business loan, owning a home, or even a job.
Credit Cards - A Blessing or a Curse?
Owning a credit card can be quite an advantage. Whethermaking online purchases, booking an air ticket or a hotelroom on the phone or simply being in need of someemergency cash, having a credit card can be a big help.
Useful Tips on Using Credit Cards
Here are some useful tips on using credit cards. Whether you shop online, by telephone or by mail, a credit card can make buying many things much easier; but when you use a credit card, it's important to keep track of your spending.
Online Credit Report and Online Credit Reports
Online credit reports are easily accessible to those interested in viewing them. If you have wondered about what kind of credit score you have, you can go on the Internet and look at your online credit report.
What You Need to Know about Debt Negotiation on Credit Cards
Debt negotiation on credit cards is often referred to as credit card debt settlement. Whenever you make a credit card payment- or even pay your utility bills- it usually gets reported to one- or all- of the three main credit agencies.
19,178 Identity Theft Victims Per Day - Are You One Of Them?
Identity theft statistics are shocking. And we are told that it will only become worse, before it gets any better.
Beat Credit Card Companies at Their Own Game!
Have you ever wondered how much money a credit card company makes? Have you ever wondered how much of that comes from late fees? Everyone has and if you haven't you should because most likely you own a credit card, which means that these late fees has or could directly affect you.As you have probably taken notice, credit card late fees are on the rise and have been so for awhile.
Balance Transfers Introduction
Credit card balance transfer involves using a credit card to pay off the amount outstanding on one or more credit/store cards. The total debt then moves to one card.
3 Ways to Improve Your Credit Score by 50 Points In Less Than 30 Days
In Less Than 30 Days. "What can you do to increase that set of three numbers on your credit report that can be so important with your financing?" I came across this question as I was surfing discussion groups the other day.
Pitfalls of the Credit Industry
The credit industry if rife with pitfalls. If you have ever owned a credit card you probably already have learned this the hard way.
Rewards Cards: Are They Worth It?
Virtually all consumers will have a credit card at some point in their lives. Is this an understatement? Probably, as most consumers carry multiple credit cards.
How To Start A Second SEPERATE Credit File!
Your personal credit file is separated from those with the same or similar names by several factors, including a driver's license number, birth date, or spouse's name. Although these are three important identifying marks, the number one identifying mark on your credit report is your social security number.
Recognizing the Signs that You Might Need Credit Counseling
Most families in America today have a credit card; some have two or more. The type of credit card you own, gold, platinum, ext, is almost a status symbol in society.
Why Does FACTA Matter to Me?
FACTA stands for Fair and Accurate Credit Transaction Act. FACTA is the law which allows any American access to their credit report once per year.