Minimum Repayments Continue to Ripoff Consumers

Making Minimum Payments Is a Bad Way to Deal with Credit Card Debt

Minimum payments are the financial hell-hole, or debt-hole, of an increasing number of Australian credit card holders. Every card holder knows that minimum payments are not the way to deal with credit card debt. Yet, they cannot, or will not, avoid that bad financial habit. And every so often the figures are trotted out to advise consumers about this destructive habit, but for emphasis sake, they should be trotted out as often as possible. For instance: If you have $5,000 in outstanding credit card debt, it will take you at least 10 years to repay if you make only minimum payments each month.

If you have $5,000 in outstanding credit card debt, it will take you at least 10 years to repay if you make only minimum payments each month.

These facts were reported by financial writer, Bina Brown, in the Sydney Morning Herald. But then, she noted in the same article that Roger Mendelson, chief executive of Prushka, a debt-collection agency, estimates that a good 10% of Australian households are struggling to pay their bills. Chances are many others are close on their heels.

Figure Out Where You Stand

If you want to get a handle on your own credit card debt and what your debt load will be if you make only minimum payments, you may want to use the free credit card calculator available on this site. In addition to helping you learn about your minimum payments, it will also help you figure the maths so you can devise a strategy to free yourself from onerous credit card debt.

So, whether they cannot, as Mr. Mendelson suggests, or will not, those card holders that make only minimum payments are at least part of their own problem. But, what is the responsibility of credit card issuers regarding this debt dilemma?

Credit Card Companies Help Their Customers Rip Themselves Off

Credit card issuers don’t really mind if their clients make only minimum payments. That leaves so much more debt to sit there accumulating interest. Nowadays, the average credit card interest on  a standard Australian card sits at around 17.5% according to reports from the Australian Associated Press. Though not quite loan-shark rates, they are incentive enough for the average credit card issuer not to do much to help Australians get out from under their debt load. Why should they? Interest collections are their bread and butter.

Credit Card Issuers Set the Rules

In case you haven’t read the fine print on your credit card contract – so many don’t – card issuers pretty much set the rules and most consumers sign the contracts willingly. Though the minimum payment rip-off that so many issuers and users willingly subscribe to may seem bad enough, the real rip-off may occur when the consumer fails to meet even the minimum payment.

The real rip-off may occur when the consumer fails to meet even the minimum payment.

Should this happen, the card issuer is at liberty to raise the minimum payment – sometimes as much as three times the original, slap the user with tremendous late payment penalty fees, and then impose almost usurious interest rates on any remaining balances – these rates often exceed 20%. Of course, this compounding of debt makes it all the more difficult to stay abreast of what’s owed. And, it’s all perfectly legal.

New Rules May Help Minimum Payers See the Light

Proposals before Treasury and the financial industry include a number of measures that may help card users more thoroughly understand their financial situation. These include data that would be tacked onto each monthly credit card statement:

• The amount of interest to be repaid.
• The time it would take to pay back a balance making only minimum payments.
• The amount of time it would take to pay off the balance after the credit limit has been reached.

Each of these could serve as a deterrent to making only minimum monthly payments. Most consumers would probably find making these calculations on their own somewhat daunting – these sort of maths tend to make the eyes glaze over. Of course, credit card issuers have relied on the ignorance or laziness of their customers to a certain degree since credit cards were first issued.

Other Reforms Could Help Lower Debt

Treasury is also recommending that over-the-limit fees be banned and that issuers should not allow users to go over their limit by more than 10%. These reforms would help lower overall debt and perhaps forestall consumers from getting in over their heads. Of course, issuers are dead set against these reforms. According to a report in The Sydney Morning Herald, over-the-limit fees account for hundreds of millions of dollars in the profit columns of issuers each year.

Card Users Who Carry a Balance Should Help Themselves

If you are inclined to carry a balance due to cash-flow problems or for the ease of carrying out payments on high-ticket items, you should at least have the best possible card for your situation. Obviously, find a card with the lowest possible interest rate. You may also want to take advantage of balance-transfer offers to get large debt off of high-interest cards.

Making only minimum payments is absolutely not the way to deal with credit card debt.

Use a balance transfer offer wisely: Don’t put any new charges on the balance-transfer card, make sure you pay off the balance transfer before the “honeymoon” period (usually 3-12 months) is over. Failure to do either will result in your debt increasing to a point that you’re worse off than you were before you executed the balance transfer. No matter what you do, understand that making only minimum payments is absolutely not the way to deal with credit card debt – it’s a rip-off.

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