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Survey: Minimum card payments rising

$10 minimum payments a thing of the past

By Karen Haywood Queen and Marissa Fajt

The days of the $10 minimum credit card payment are over, found in surveying how the top 10 credit card issuers set their minimum payments.

Of the 10 credit card issuers we surveyed in June 2014, two set $15 as the minimum dollar amount payment; one charges $20; four charge $25; one charges $30; and two charge $35.

One issuer, Discover, lowered its minimum payment to $35, down from $40 in January 2012, our last survey. Two issuers set higher minimum dollar amount payments. Citi raised its minimum dollar amount from $20 to $25.

Chase raised its dollar amount minimum to $25 from $10; now no card issuers offer a $10 minimum payment.  (See table, "Minimum payment policies, major credit card issuers.")

 Survey: Minimum payment survey

The formulas used to calculate minimum payments were largely unchanged. After being criticized by federal regulators in 2003 for setting minimum payment formulas at levels so low they kept consumers in near-perpetual debt, most of the industry has now settled on a basic billing formula, with one payment method for high balances, another for low balances. The formula for high balances calls for consumers to pay 1 percent of the total balance, plus the monthly interest charge and any fees. Once consumers whittle down their debt, the minimum dollar payments kick in.

Although a higher minimum payment may hurt your wallet today, it's a good deal down the road. "Higher minimum payments are better for consumers, because they pay down the debt faster and cost less in interest accrued," says Chi Chi Wu, staff attorney for the National Consumer Law Center. "In fact, for years, we've criticized credit card lenders for setting the minimums too low. And we always urge consumers to pay more of the minimum whenever they can."

Minimum payments have become a featured attraction on credit card bills, getting more prominent display. Among the significant changes brought about by the Credit CARD Act of 2009 was to require issuers to include a minimum payment warning box on credit card statements. That box must show how long it would take to pay off the card's balance by making only the minimum payments, and how much you'd need to pay each month to clear the balance in 36 months.

Fear of debt has been a catalyst for people to make bigger payments to stay out of the "minimum payment syndrome," says Todd Mark, a certified counselor with Consumer Credit Counseling Service of Greater Dallas. "It can take you 10 or 20 years to get out of debt if you are only making the minimum," he said.

Along with the requirement to starkly outline on each credit card bill how expensive it is to pay only the minimum, the CARD Act also banned excessive penalty fees and retroactive interest rate increases. The CARD Act has saved consumers about $12.6 billion per year in fees and interest charges, according to a research study updated in April 2014. That adds up to $23.44 in savings per account per year, the study says.

Our previous survey, in January 2012, showed a few card issuers raising minimum payments to either a set dollar amount, or a percentage of the full balance due, plus the monthly interest -- whichever was greater.

Our June 2014 survey showed most percentage calculations for minimum payments remaining the same while a few dollar amount minimums changed.

With a dollar amount minimum payment of $25 instead of $10, some Chase cardholders may have seen their minimum payment requirements more than double. However, the increase affects only those cardholders with low balances; those with larger balances would likely see minimums well above $25 under the formula calling for 1 percent of the new balance, plus periodic interest charges and late fees.

What banks require, how they're different
No specific set of regulations details how minimum payments should be set, each company can set its own model. Further, some companies set minimums differently for the different cards they issue. But the models are similar: They require a small percentage of the outstanding balance, plus fees and interest. For many companies, if the balance on the card is below a certain dollar amount, the full balance is due.

Some companies' calculations are a little more complex. Try saying these all in one breath:

American Express sets its minimum payment as the greater of interest charged on the statement plus 1 percent of the new balance (excluding any over-limit amount, penalty fees and interest on the statement); or $35. Then the company adds any penalty fees shown on the statement, 1/24th of any over-limit amount, rounds to the nearest dollar and adds any amount past due.

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Wells Fargo also has a complicated formula. The minimum payment due is the greater of $15 (or the entire balance if the new balance is less than $15); or the sum of the fees and interest accrued during the billing cycle for which the minimum payment is calculated, plus 1 percent of the new balance shown on the billing statement. The minimum payment is then rounded up to the next highest whole dollar amount.

Chase made the most significant change we saw from 2012 to 2014, raising its minimum from $10 to $25. Its formula is now the larger of $25 (or total amount owed if less than $25); or the sum of 1 percent of the full balance, the periodic interest charges and late fees billed on the statement for which the minimum is calculated. In 2012, the minimum payment was the larger of $10, 2 percent of the balance, or 1 percent of the balance plus all interest and any fees.

Reality of minimum credit card payments
Dennis Campbell, an associate professor at Harvard University, worked as part of a team that studied the impact of the CARD Act. The results, released in February 2011, showed the new information had had a positive impact on cardholders paying more than the minimum.

"A large fraction of consumers did key in on the 36-month number," he said. "We saw a spike in customers paying around that amount when the disclosures came.

Prior to the CARD Act, fewer than 2 percent paid the amount required to pay the debt off in three years, Campbell said. "It spiked up to 8 percent or so after the CARD Act. It went up four times. People are framing on this thing."

Campbell's group looked at data from Affinity Plus Federal Credit Union's 132,000 members, which had a credit card portfolio of 30,000 members.

Campbell said cardholders with lower credit scores focused on the 36-month number more than other groups. "This is the population that the rule was most intended to affect," he said. "These are the people trying to improve credit behavior and score. Our data suggests this is the population most likely to be impacted."

Still, those looking to that 36-month number as what they will pay should realize that the minimum payment changes every month as their balance goes down. Consumers who want to pay the card off in the 36-month time frame should maintain the same payment and make no additional charges.

Payments applied differently, too
The CARD Act also changed how payments are applied by banks when consumers have balances that carry more than one interest rate. pay above the minimum in a way that helps pay down debt faster.

Before the act, the common practice in the industry was to apply payments to the debt with the lowest interest rate. The act requires at least some of the higher-priced debt to be repaid first.

For example, if you had a balance with a 0-percent introductory rate and a balance from a cash advance at a 20-percent rate, the act requires the credit card company to apply your payments to the higher rate debt before it reduces the balance on the lower rate debt. That's good news for cardholders, consumer advocates say.

Bank name Minimum payment policy Min. payment for a $1,000 balance at 15%* Min. payment for a $500 balance at 25%*
American Express The greater of:
   •   $35;
   •   Interest on the statement, plus 1 percent of the full balance, plus any penalty fees.

To either of those, AmEx adds 1/24th of any over-limit amount (rounded to the nearest dollar), plus any past due amount.
$35 $35
Bank of America The greater of:
   •   $25;
   •   1 percent of the full balance, plus interest and late fees, if applicable.
$30 $25
Capital One The greater of:
   •   $25;
   •   1 percent of balance, plus the current statement's interest charges, plus past due fees, plus any amount past due.
$30 $25
Chase The greater of:
   •   $25;
   •   1 percent of the full balance, plus the current statement's interest charges, plus late fees.
$30 $25
Citi The greater of:
   •   $25;
   •   1 percent of the full balance, plus the current statement's interest charges, plus late fees.

In all cases, add past fees and finance charges due, plus any amount in excess of credit line.
$30 $25
Discover The greater of:
   •   $35;
   •   2 percent of the full balance;
   •   $20 plus interest and any fees.
$35 $35
Synchrony (GE Capital) The greater of:
   •   $20;
   •   1 percent of the full balance, plus interest and any fees.
$23 $20
USAA The greater of:
   •   $15;
   •   1 percent of the full balance, plus interest and any fees.
$23 $15
U.S. Bank The greater of:
   •   $30;
   •   1 percent of the full balance. In all cases, add any late, annual and/or account fees.
$30 $30
Wells Fargo The greater of:
   •   $15;
   •   The sum of fees and interest accrued during the billing cycle for which the minimum payment is calculated, plus 1 percent of the full balance shown on the billing statement. The minimum payment is then rounded up to the nearest whole dollar.
$23 $15
Source: research, June 2014.
*Assumes no late fees or other fees.

See related: Calculator: The true cost of paying the minimum

Updated: June 26, 2014

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