ADVERTISEMENT

When a minimum payment increase becomes unaffordable

A huge monthly payment can be a blessing or a curse

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

Ask a question

'The Credit Guy' archives

Question for the CreditCards.com expert

Dear Credit Guy,
I've had a credit card for 16 years with a company I liked. They recently announced an increase in monthly minimum payments -- to 5 percent of balance -- a change that would double my payment. I have a wildly fluctuating monthly income. I called upon receipt of the announcement, saying I wanted to cancel the card and stay with the original terms. Customer service canceled the card, but when I asked to confirm we were back on original payment plan, he put me on hold and said nope, I still had to pay 5 percent of balance. The supervisor said there's no opt-out option -- call after I'm billed, and maybe we could work out a payment plan. This charge is sudden, unfair, and I do not agree to these terms. Is it just a case of tough luck Charlie? Is this legal for the bank to change the payment terms overnight? Just wondering. -- Melissa

Answer for the CreditCards.com expert

Dear Melissa,
Some of the major credit card issuers made the change to a higher percentage of the balance owed minimum payment before all the provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) went into effect. The change to a higher minimum payment can be tough for those who cannot afford to more than double the minimum payment due under the old terms. But the change is good for the average consumer in the long run because more of your principal balance is paid and you get out of debt faster.

The long-term benefits, however, are not going to help you in the short term. The CARD Act does not prevent the card issuer from raising your minimum payment and it is a term change for which you do not, unfortunately, have the choice to opt out. From the creditor's point of view, they are attempting to decrease the time to collect by raising the minimum payment.

What you need to decide is how best to deal with paying what you owe. If you can't afford the new minimum payment, you will need to work out a different payment plan with the creditor or move the balance to a different loan product. You might consider transferring the balance from your current card issuer to another credit card with more affordable terms or research a home equity line of credit or loan to pay off your balance. What you don't want to do is pay less than the minimum payment. If you do so, the account will be considered late. If it is late for more than 60 days, the creditor can raise the interest rate to the default APR of 29 percent or more.

Due to your fluctuating income, a home equity line of credit may make the most sense for you, assuming you have sufficient equity in your home. Should you need access to additional income some months, the line would be available. In the months that you do well, you can pay back what you borrowed in the previous months as well as make a regular payment to pay down what you borrowed to pay off your credit card. Keep in mind that with a home equity loan or line of credit, you are putting your home at risk if you default on the loan. If you are not a homeowner, you might consider contacting a local credit union to see if you qualify for a personal line of credit.

Take care of your credit!

See related: A guide to the Credit CARD Act of 2009, When even the minimum payment is too much, How to cope with sudden minimum payment increase

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Published: November 22, 2010


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Follow Us


Updated: 12-02-2016


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT