Reading the fine print on cc statements

[rosebron]

I was unaware at one time that the minimum payment on a credit card is calculated as 2% of my principal balance each month.
So if I owed $100 at 0% interest, my minimum payment will be
0.02*$100 = $2.00
All of my $2.00 payment would go to principal.
But if I pay the minimum it will take me 50 months
$100/2% = 50
or a little over 4 years to pay if off . Even though I pay no interest, I would be a slave to this payment for over 4 years!!!!!.

I truly hate how cc companies trick us into 0% interest rate cards, low rates for the life of the loan, and minimum payments. If you have a large cc balance, this takes some of the pressure off of you but sometimes, I tend to get comfortable with the payments. So althogh DH has a cc balance at 7.90% and we've decided to snowball payments to it vs. transferring the balance to a 0% card. Plus, the interest he will pay will be about equal to the balance transfer fee. So, he is even more motivated to pay it down quickly.


I read somewhere that at the end of 2005, new banking guidelines went into effect to save us from ourselves. The new guidelines have pressured credit card companies to boost minimum payments so that people can pay off debts in a reasonable time. What many banks did was change the 2% minimum payment to requiring a monthly minimum to cover interest, any fees or extra charges plus at least 1 percent extra of the principal amount.

[NCGirl]

Until that new law went into effect, my BOA CC minimum payment was .4% Yep, you DID read that right. My balance at one time was $22,000 and the minimum payment was well under $100/month. I figured it up once, if I made JUST the minimum payment with no further charges, it would have taken something like 60-70 years to pay it off.

I now owe just under $12,000 on this card and my minimum payment is around $200. I am trying to pay at least $500/month and hoping to pay it off within 2.5 years!!

[AheeK]

I don't understand how having such low minimum payments benefits the cc companies. I'd understand it if you were paying interest, because then the longer it takes for you to pay off the debt, the more money they get from you. But on a no interest card, I can't see the benefit to the company in having tiny dribbles of money coming in from thousands of debts for years and years. Why do they set it up that way?

[littlemotherhaywood]

I think that a company has to set the same payment guidelines for everyone so it just works out that they only get tiny amounts from the zero interest customers while they rake in money bit by bit from their high balance customers. It would seem odd for a zero interest card to be paid over so long, but I don't think that was their original intention. I just don't think they can discriminate based on percentages or balances. It has to be the same equation for everyone. Someone with a high balance and high interest is going to make them a ton of money over the years by only paying that minimum. Most cards will offer zero interest for the life of a transferred balance banking on the fact that someday you'll use the card for something else. Once you've done that, they only credit the zero interest balance (ie the oldest balance) first while the balance that earns interest just keeps earning and increasing. Not a bad plan on their part actually.

[rosebron]

WTG on your debt reduction, NCgirl.
And what littlemotherhaywood said is so very true.

Plus, the cc companies attract the unsuspecting customer like me with the zero percent rate for life!! Then God forbid that I have a late payment, a returned check, or a problem with another creditor and then BAM!!!, they hit me with fees and my rate skyrockets to the 'default' rate, something like 29.9%!!! Then it takes an act of Congress to reverse this rate!

If you have no alternative, (which much of us don't have) then you're stuck! I sold some stock once to pay off a card because of this - they made me soooo angry!!

To me, we just need to leave those cards alone if we are in a position to do so.

[Jenna]

I'd have to agree with Rosebron. The c/c's are banking that a mistake will be made (universal default clause, late payment, over the limit balance) which will allow them to jack up the APR and tack on fees.

[NCGirl]

Also, don't forget that some of the cards that offer 0% interest on transfered balances until paid off have a clause where anything you buy after your balance transfer is not paid on with your monthly payments until the entire balance is paid off the 0% first.

For instance lets say you transfer $10,000 at 0%. Then you charge up another $10,000 on the card at 15.99%. Well, every penny of your payments are going towards the 0% balance first while the balance with the 15.99% is growing and growing and growing!

Does that make sense?

[rosebron]

Yes it does, NCGirl.

I didn't know this until a friend told me about 3-4 years ago. She had 1.99% for life at Chase for a balance transfer of about $5000. A friend whose credit was shot asked her to pay for his $200 airline ticket using her credit card and gave her the $200 in cash for the ticket. She paid for his airline ticket online and she paid the cc company.

Imagine her shock when she still noticed that she owed $195 because her purchase rate and her balance transfer rate were not the same. She is still paying off that balance transfer and STILL PAYING INTEREST, now at around 17% on that initial $200 purchase. She is very kind but that was the LAST STRAW. She informed everyone that henceforth she was not doing any more favors. I think she still owes something like $100 at the purchase rate.

[rosebron]

I was wrong. The default rate on my Citicard is a whopping 32.24%!!!