Are Your Credit Cards’ Minimum Payments Going Up?

August 7, 2009

My post a while back about Discover closing my account, prompted an AFM reader to send me an email earlier this week, detailing some of his recent experiences with credit card companies. One of them involved his minimum payment going up from 2% to 5% of the closing balance. From his email (edited slightly for clarity):

I received a notice: “In order to make the account more profitable,” Chase is changing the minimum payments from 2% to 5%.

No mention is made about the promotional rates – I included a question to Chase about the minimum. Their response (paraphrased) was that the promotional rates were for rates only and did not include the amount of required payments. Yes, the minimum payments were changing effective with the August statement [no mention if August payment or ending date] and if minimums were not met, the account would be in default.

Continuing, they state they are doing me a favor by accelerating the payments and reducing the amount of interest I will pay in the long run. They then state if I cannot make the payments to contact their special account number to arrange payment at the higher interest rate, or close my credit line and the full amount would become due and immediately payable.

Just to be sure, I did some checking and sure enough, Chase is in fact raising minimum payments (see here).

As many of you know, this is a double-edged sword. As is mentioned above, the new minimum payment will bring the balance down much faster than before. On the other hand, the payment will go up significantly. For example, say you have a credit card with a $5,000 balance. At 2%, your minimum payment is $100. With the new 5% minimum, the payment would go up to $250—a 150% increase. This is significant for several reasons:

1. People who are paying minimums could be doing so because they can’t afford to pay any more than that. Increasing their payment by 150% is not going to help.

2. Not being able to pay the minimum payment will cause the account to lose it’s promotional rate and the interest rate will soar higher, but the minimum payment will stay the same.

So why would Chase do this? Because of the fact that they can’t just raise interest rates like they were able to do. So, instead of raising rates, they increased the minimum payment, hoping people with promotional interest rates would default and become subject to the higher interest rates.

The article I referenced above did mention that some people were able to keep their minimum payments the same by calling Chase’s Proactive Solutions department (1-800-404-6220). The downside is that they will close your account, which could affect your credit score.

Of course the best thing to do is pay off all credit cards. But, I realize that that’s not possible for lots of people.

So, have any of you experienced anything like this?

22 responses to Are Your Credit Cards’ Minimum Payments Going Up?

  1. Paying only the 2% minimum payment on a credit card with interest at 15% would take well over 30+ years to payoff (if you didn’t add to the debt). How could you afford to _not_ pay more than the 2% minimum payment?

    The initial payment amount increase is a shocker, but it will fall off rapidly since the debt is repaid much, much sooner. For example, the payment amount will be half (or so) after the first year.

    I thought that pretty much all banks were (or had already) raised the minimum payments to 5%, keep an eye on that fine-print that comes with your monthly statement (they give you a 45-day warning).

  2. When my “My Points” VISA through Washington Mutual was taken over by Chase, they stopped the “My Points” reward points, raised the minimum payment, and just this past week, decided to increase my interest rate from 11.24% to 18+ %. But, TOO LATE! I’d already moved the balance to a “0% for 9 months” card. What’s nice is that now I don’t have to cancel the card which would mess with my credit score. The Chase card has no balance and I just won’t use it.

  3. Chase Bank is run by greedy pigs (aka Corporate America).

    No, I don’t have a Chase credit card, I got rid of it years ago when they started being stupid (aka Greedy).

    To all: get a credit card, use it to buy coffee once a month, pay it off. Don’t contribute to Chase Bank’s profits by using the card on anything more expensive than a cup of coffee. Use cash, it saves you money in fees and hassle; and it saves the merchant money because using a card costs them 2-5%. And, buy local.

    Tim Hawkins
    Scotts Valley, CA

  4. Credit card companies are always looking for the extra buck, which most companies do usually in a more straightforward way. But, the credit card legislation recently passed is contributing to this behavior. Expect all the other card companies to follow suit. The government claimed they were helping the credit card consumer, but they created these loopholes to allow this type of behavior. They also gave the card companies six months to “prepare” for the transition. This is how they are preparing.

  5. Increasing the minimum payment slightly is only going to help the users. However, increasing it too much could have an adverse effect on the users.

  6. Not only have my minimum payments been going up, the interest has been slowly creeping up as well. I stopped using credit cards a long time ago (in fact I cut them up and threw them away) and pay off a monthly amount a little above the minimum so that I can get them out of my life as quickly as possible.

  7. Most credit unions offer credit cards with rates better than banks. Plus they treat you better and appreciate your business. You can also get car loans and mortgages at many of them.

  8. I have a citi personal CC with a 0% for life, and it’s minimum payment has remained the same (1.5% of balance), and my chase business card with a 0% for 15 months has remained the same (2%). i pay all of my other cards on time and don’t carry a balance.

  9. I think this will be a good thing, with some very bad consequences. If you can’t pay for 5% of what you owe on your credit card, you’re in a bad place. This change may or may not be catastrophic for those individuals, and it’s terrible if it is.

    But nobody should owe more than 20 times what they can afford to pay for on their credit cards. These changes are simply beginning to approach a sensible way to use credit. I hope to see more of them.

  10. Chase raised my minimum payment from 2% to 5%. My account consists entirely of various promotional rates from 2.9%-5.9%. It will be a tough nut for a few months, but it will also be the impetus to pay it off. (The lowest promotional rate gets paid first, so the average percentage rate increases as the balance decreases.)

    Last week, Chase reduced my credit limit to the current balance + $200. We’re going to have a talk about that.

  11. Yang said:

    “The lowest promotional rate gets paid first, so the average percentage rate increases as the balance decreases.”

    That should be criminal. CC companies should be required to direct payments to the highest interest portion of the debt first.

    Aren’t we supposed to get a ‘bill of rights’ law so these companies can’t use these tactics?

  12. Let me answer my own post — the text of the credit card bill of rights, (which is law now): H.R. 627 (signed by POTUS on May 22, 2009):

    “IN GENERAL- Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.”

    So, it looks like if you only make the minimum payment, the CC company can apply all of it to the lowest interest-rate portion of the debt. Anything over the minimum payment must be applied to the highest interest-rate debt. Raising the minimum (from 2% to 5%) helps the CC company here, since all 5% can be applied to the promotional rate now.

    Also, the minimum payment can’t be so high as to pay the loan off in less than 5 years — which is the 5% minimum payment (highest allowed by law). There is nothing preventing the company from only requiring a 2% minimum payment, though.

  13. If you don’t like the way the credit card companies treat you then don’t use their products. Those of you who think that you are being so clever by getting cards with special rates (introductory, balance transfer, etc.) – guess what – the credit card companies are even more clever and they are making big bux off of you. And lastly, if the credit card company raising the minimum payment on your card causes a crimp in your budget, it is a wake up call that you are charging way too much and holding too big a balance.

  14. I don’t have a problem with the payment, but Chase lowered my limit by 6K and refused to raise it.

  15. One year ago I signed up for a 3.99% offer from CHASE VISA for the LIFE OF THE LOAN. I have the monthly payment deducted from my bank and I am always timely. My monthly payment went from under $400.00 for August payment to OVER $900.00 expected for September’s payment. This is not reasonable! CHASE was NOT willing to provide a logical compromise only OTHER option provided was to increase my 3.99% interest rate to almost 8%. How is that helping the consumer? I was even willing to increase my monthly payment but not to over $900.00!! I used the money in 2008 to build a needed garage. This is the ONLY credit card I have with a balance and the garage was the ONLY purchase.

  16. Well I am one of those that just got nailed by Chase and I had no idea that Chase planned on or could have even done this so abruptly. My $173.00 monthly min. payment that I have always PAID ON TIME and always MORE than the min. payment required, went up to $430.00 because it was a balance transfer offer for a fixed rate of 3.99 on a 8,600.00 balance that they would like to get rid of so they can lend that money out at a higher interest to others. I will struggle to make it but I really feel for others who might have to suffer a default interest rate of 30% because they ended up missing a payment due to the fact that they can’t afford the difference in payment so abruptly. Wamu was always good it seemed, but since Chase took over, it turned into as much of a Loan Shark as any Banking Institution can get. But I am not taking this lightly. Next week I will take out all the money in my 2 Chase checking accounts leaving only $12 in each and open new accounts at another bank. I will then write myself a monthly check (since I have all these leftover checks) to my new Banks for $1.00 out of the Chase accounts as a constant reminder to Chase that I am using a different bank for my business now and still keep Chase’s administrative staff busy with my FREE checking accounts. All three of my Sons will do the same with their accounts at Chase. Then I will balance transfer my other 2 Chase credit card accounts that are lower balances with higher interests to another bank. I read where banks said they are doing this so people can get out from under their debt. BS.. My other 2 Chase card accounts with a higher interest, their minimum payments didn’t change. If anyone has suggestions on ways to protest these disgusting tactics of Chase to fatten their bonuses when people are desperately struggling to just survive in this economy, Please share!!!

  17. I have Fixed Rate at 3.99%. The credit card company increase from 2% to 5% the capital. I called them and gave me the following options: First, Payment the increased amount of payment (my case from $210 to $498)……… or change my fixed rate to 7.99% to lower to 2% the capital. IS IT RIGHT?……….

  18. If you don’t like the terms don’t use the card? That’s the problem. I did like terms for a transfer for 3.99% for the life of the loan which I used for business. Now they change the terms. This is Mob stuff. If I would have known before or was able to opt out I would have done so. Again, this is pure scum business practice. The banks are now runned by the mob.

  19. They got me !!! I bought 3 acres of land that my neighbor wanted to get rid of. I got the 3.99% till the balance was paid off. I never used the card for anything else but this and was never late so I would make sure to keep the special % rate. My minimum went from $483 per month to $1083 and I wasn’t paying the minimum before this happened. Things were tight around my house before. Now I don’t know what I will do.

  20. Hello JLP,

    I have been reading and lurking as they say on your blog for a few months now. I thought I could go ahead and add to the conversation.

    As many consumers are finding out, banks are doing everything they can to reduce their exposure right now. This includes reducing or eliminating credit lines, increasing minimum payments and raising interest rates as a leveraged tactic to encourage consumers to pay off and close accounts.

    The lesson is that consumers need to try to get off a system of credit reliance as quickly as possible. Credit is a tool but it should not be a necessity. I know this is easier said than done for most consumers, but it is just a new fact of life.

    Gone are the days of easy credit. At least for the foreseeable future. This credit crunch is going to be very difficult, but consumers need to get out of hawk and debt free as quickly as possible. Consumers should not rely on credit as their emergency funds, or they can wake up one morning to find it has been taken away.

  21. Although none of the rate increases seem very fair the credit card companies only care about themselves and not us. I can’t see why when people are struggling to make payments as it is to up their rates and double the minimum payments.

  22. I am SOOOOOOOOOOOOOOOO sick of (1) credit card companies RAISING MY MINIMUM PAYMENTS AND (2) JACKBUTTS who say, “Oh, but you really SHOULD pay more each month; that way you don’t pay as much in the end.” HELLOOOOOOOOOOOOOOO IDIOTS!!! When I first took out my 4 or 5 credit cards, I was TOLD WHAT THE MINIMUM PAYMENTS WOULD BE!!!!!!!!! I BUDGETED WISELY FOR A LITTLE MORE THAN THOSE MINIMUMS, BUT NOW I CANNOT AFFORD IT SINCE EVERY COMPANY HAS RAISED THEIR MINIMUMS BY DOUBLE!! My minimum monthly payments have gone up by about $100/month. Some people cannot afford that.