What to do When Your Minimum is Raised

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Mon, Jun 29 - 4:03 pm EDT | 5 years ago by
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Numerous stories are popping up around the personal finance blogosphere with regard to the fact that Chase is raising the minimum payment on its credit cards. Last month, I wrote a post about things are about to get ugly for consumers in terms of their credit card accounts. So it was no surprise when that post (although a month old) saw this recent comment from a reader, Lisa:

Yesterday (6-25-2009) I got a notice saying my “minimum” monthly payment was going from 2% to 5%. That means my payment of $345.00 will start to be $810.00 in August. I will not be able to afford that. Mind you, I always pay my bills, don’t get late payment charges and the last time I checked, my credit score was like 797. Yes! I’m having financial troubles and am just barely holding on. This will send me over the edge – especially if my other credit cards follow this one. … HELP!

87868419SP003_Credit_Card_RThis is probably a common refrain across the nation right now. And, sadly, this new rule is aimed exactly at folks like Lisa. Chase will keep your minimum payment at 2%, if you agree to allow the company to raise your interest rate. The most common recipients of this change to credit card terms are those with low introductory rates of between 2.9% and 5.9%. You can see where this is going. The higher interest rate means Chase gets more money, and allowing you to keep the lower minimum means that you make payments for longer — meaning Chase gets more money. The way I see it (and every situation is different), there are three options here:

Option #1: Suck it up and make the new minimum payment

If you don’t agree to the higher interest rate (and keeping the current minimum payment), you will have to make the new payment. Since you have about a month, now is the time to do some serious surgery on your personal finances. Look over your budget and see where you can make cuts. This may include cuts to entertainment, cell phones, eating out and other negotiable expenses. (Note: Your housing payment, especially if you have a mortgage, is not negotiable. Always make sure this is paid.) Figure out which expenses you can cut and get it so you can make the new minimum payment. It’s not pleasant, but in the long run, you will save money in interest and pay off your debt faster.

Unfortunately, many people do not have the option to cut back so dramatically. The current economic conditions mean that some folks, due to cutbacks or layoffs at work, do not have the ability absorb an increase of the magnitude proposed. In such cases, you might go with:

Option #2: New loan

In some cases, it might be wise to get a new loan to cover the amount of what you owe. Pay off the credit card, and move on. Of course, you still have a loan. You might try switching to a different credit card with an introductory rate of between 0% and 3.99%. You could also consider getting a debt consolidation loan from somewhere. If you have reasonably good credit, you might be able to get a personal loan with an interest rate of between 7% and 12% from your bank or credit union. (While this is higher than your intro rate, it is likely to be a lower rate than what the credit card will offer you in exchange for keeping the minimum low.)

Another possibility is to use P2P lending, such as Prosper or Lending Club to help you lower your payments. In any case, though, I would think twice (or thrice) about using a home equity loan to secure your credit card payment. Do that last.

Option #3: Debt settlement or bankruptcy

If nothing seems to be working at all, you can reach for the final tool of desperation in these cases: Debt settlement or bankruptcy. You can usually reach settlement for unsecured debt, allowing you to pay less than you currently owe on your credit card. As an extreme last resort, bankruptcy can help lower your payments to something affordable (even though in recent years bankruptcy laws rarely allow you to walk away). In both cases, your credit will be shot, so it is not a decision to be taken lightly.

What will you do if your credit card minimum is raised?

image source: daylife

Disclaimer: I am not a financial professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. Do your own research, consider your situation and/or consult a professional before making money decisions.

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  • http://www.debt-elimination-services.net Debtelim

    The financial issues we are having in todays economy are sad, but if you start planning now you have a much better chance of survival. I have chase and my minimums keep going down, this is because I use my own systematic solution to break their interest cycle. Dont let the credit card companies take advantage of you fight back before it is too late. I customize programs for my clients that help them conquer this task , this can be done even of you can only make the minimum payments.
    Good Luck.

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  • Lisa

    I forgot to click the notify box. Comments welcomed!

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  • nunya

    Par for the course! *WE* who make our payments on time and show responsible borrowing practices get PUNISHED b/c of stupid poor people who get a bill and promptly CHOOSE to crumple it up and throw it out as if they don’t have to pay it. Like, you know…a house payment! They started all of this. Get a house they can’t afford, then blame the lenders for not telling them how much their payment will be. DUH! Some people shouldn’t have a house!!!! That’s why we have apartments. Typical behavior of those who CHOOSE to be poor and ignorant and irresponsible. My guess is that type will never learn either. Like pigs at a trough…they’re disgusting.

  • marge11
  • Jim

    I’m of the school if you can’t pay the balance off entirely every month you shouldn’t have a credit card. Or at worst, you should shred the card, stop charging and pay off the darn balance as soon as possible. Extended credit card borrowing is a loser’s game.

  • Lisa

    I believe what triggered the upcoming increase was because on my last statement, I was offered “the flexibility” to skip a month of paying – which I chose not to do! So far, that is the only difference my research has turned up!

  • Miranda Marquit

    I agree that if you are going to use credit cards, you should pay of the balance every month. Paying interest like that is a good way to lose money every month.

  • Miranda Marquit

    I read that article, too. It was very interesting — and a bit depressing.