Despite good intentions, the Credit Card Act fails to help consumers in some areas where help is most needed, particularly in respect to monthly minimum payments. During the past seven months, many have written into Smart Balance Transfers to share horror stories of monthly payments doubling, sometimes tripling, from manageable amounts to mortgage size payments in the high hundreds and low thousands. The vast majority of monthly payment increase recipients had done absolutely nothing wrong-except take advantage of good deals.
And therein lies the problem. During the days of loose credit before the crisis, credit card companies frequently offered fixed for life interest rates on balance transfers in the very low single digits, often between 3.9%-7.9%, with many on the lower side. Consumers who took advantage of these deals often transferred large balances and proceeded to dutifully pay them down. However, those who did take advantage of these deals assumed their monthly payment would gradually decrease over time as they reduced the balance. No one seems to have anticipated a doubling of their monthly payments.
Unfortunately, credit card companies (and their lawyers) figured out a way to force people out of low fixed rate deals by raising payments to absurd levels. These monthly payment increases have pushed many people to the brink. Some have had to renegotiate to higher interest rates. Others, I imagine, have had to take out second (or third) mortgages.
The banks have nothing to lose by increasing monthly payments as they know they can use late payments to jack up rates and damage credit scores badly enough that the victim can’t get another credit card loan. As of last Thursday, banks will no longer be able to pass sweeping interest rate increases. But, until payment increases are addressed by lawmakers, everyone is in danger of having their monthly payment increases. This is yet another reason paying down credit card debt is more important now than it has ever been since if you don’t owe your credit card company money, they can’t ruin your financial life at their leisure.
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