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 $250a 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?