Executives at Debt Shield, Inc., a Maryland-based debt settlement firm, said that the increased minimum monthly payments on credit card balances will most likely not double, as it is widely reported, but that the increase might push financially struggling cardholders into bankruptcy or bankruptcy alternatives, like debt settlement.
Debt Consolidation And Credit "While credit industry experts and the media claim that credit card companies are doubling their minimum monthly payments from 2% of the outstanding balance to 4%, the actual minimum payment increase is more complicated and less drastic for most cardholders," explains Mark Baylis, President of Debt Shield. "The new rules require credit card banks to set their minimum payments to cover all interest and fees plus 1% of the outstanding balance, which will result in significant increases for high-interest accounts."
- Finance charges will accrue on the purchase from the date the credit plan begins, and minimum payments are due each billing cycle.
- If the sales slip honoring your account or the card does not specify that the purchase is subject to a special credit plan, then the purchase is subject to the Regular Revolving Credit Plan.
- Any charges to your Golfers Warehouse credit card that do not meet the minimum purchase requirement of $499.99 will be subject to the rules of the Regular Revolving Credit Plan.
Check Credit Rating Baylis said that a cardholder with $10,000 on a credit card at 18% Annual Percentage Rate (1.5% monthly) pays $200 under the 2% minimum requirement. Out of that $200 payment, $150 (1.5%) goes towards interest and only $50 (0.5%) goes towards the outstanding balance. Under the new rule, the minimum payment will increase so that the amount applied to the outstanding balance in this example is at least $100 (1%), so the minimum monthly payment must increase by $50 (0.5%) to $250 (2.5%).
Progressive officials testified they only applied this model to new customers, not to renewing customers. This apparently meant that if you were initially covered by Progressive when you had a good credit rating, it would not hurt your renewal rate if your credit score went down. But if the opposite were true — you signed up when you had a bad credit rating but had since improved it — you were stuck at the less favorable rate, rated.
Improve Credit Rating The average APR is currently just under 14% (1.17% monthly), but credit card companies increase the APR to 27% or higher if the cardholder makes one late payment. This means that the reality of the new rule will punish low- to medium-income families struggling with credit card debt more than high-income families who are able to avoid paying late. Baylis said that even a small increase can have drastic consequences for families struggling to make the existing payments and manage inflation combined with stagnating income.
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Credit Online Rating Report The MMP on a credit card debt with the above-average 18% APR will increase by $50 while the same $10,000 debt with a 27% penalty APR will increase by $75. Also, the 27% APR charges $75 more in monthly interest than the 18% APR. Baylis said that this clearly demonstrates the financially destructive power of high interest rates.
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Credit Score Rating Scale "The increased minimums will be good in the long term because it should encourage less debt," Baylis continued. "But if the credit card companies want to help consumers, they need to stop punishing cardholders with outrageously high interest rates."
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Bad Card Credit Credit People About Debt Shield, Inc.
Free Credit Rating Report Debt Shield, Inc., is a debt settlement company dedicated to helping consumers resolve their unsecured debt through mutually agreeable and discounted lump sum settlements in consideration of legitimate financial hardships. By helping consumers avoid bankruptcy, Debt Shield provides a service for both debtors and creditors. For more information about Debt Shield, call 1-888-397-7546 or visit the website at www.debtshield.com.
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