Credit Cards: Minimum Payments To Increase

Prepare for credit card minimum payment increases. Two mandated changes regarding consumer credit card debt and bankruptcy could have a chilling affect on consumer spending, not only for the upcoming holiday season, but on spending habits thereafter.

Credit Card Minimum Payments to Increase Soon

The first change is a credit card minimum payment increase. Generally, it’s thought that the minimums, which now average 2%, will increase to 4% in October 2005.

What happened was the Office of the Comptroller of the Currency (OCC) became concerned about credit card balances that were growing, while consumers were paying down their debt with minimum payments. The net result of this behavior is that credit card debt would continue to spiral upward while credit cards would take years, decades or never to be repaid. The OCC, along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and Office of Thrift Supervision, proposed that by the end of 2005, credit card companies put in place a 7-10-year payback periods for reducing or eliminating credit card balances.

Bankruptcy Laws Also Have Changed

The second factor is that bankruptcy laws have changed, and by October 2005 it will make it harder to bail out of repaying credit card or November credit card bills. Especially hard hit will be those who carry large balances.

Credit Card Spending Habits Will Change

The timing of the two bills could not be worse for the upcoming holiday season and is sure to put a damper upon spending, especially in the retail sector. There will be less disposable income for purchasing goods and services starting in October.

But if you are a small business owner who has financed your business with credit cards, you’ll be caught by the same changes and see your minimum payments increase, cutting into your profits and plans.

Losses May Increase

Starting October, expect to see a flurry of new credit cards offering low balance transfers and expect that consumers will take advantage of them.

But some consumers will be unable to qualify for balance transfers and, finding themselves in a financial bind, will simply choose to forego payments on some credit cards. This means an increase of business for collection agencies and more expense for small business owners. Losses will increase due to charge-offs.

But Credit Card Spending Will Continue

Credit card minimum payment increases does not mean that all consumers will crease spending. Bless their hearts, the American way will continue, consumers will continue to spend, and the economy will continue to move forward, but how much is yet to be determined.

The upcoming changes will certainly be a bump in the road. And it will be interesting to see how consumers and businesses deal with the changes.

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