The practice of Universal default is bitterly criticized by all credit cardholders and, what's more important by the Federal Law. If you have been lucky to avoid it, then you have saved most of your available funds. Just to remind, the Universal default is a practice of raising the interest rate on all your current credit card deals in case you are delinquent on only one of your credit cards.
While this policy is being judged as unfair and predatory, some big credit card issuers have found a more sound and acceptable reason for raising credit card rates. This time, it is the minimum monthly payment that is being raised. Are credit card applications becoming less attractive because of that? Let's see.
Do not hurry to complain and criticize. The harsh step is taken for the sake of your credit rating and financial health on the whole. Increasing the minimum payback rate on their credit card applications, the lenders target at reducing the overall debt repayment period.
What's the connection between the minimum payments and credit card debt? The thing is that the lenient requirement to pay only 2% for the monthly minimum has made most credit cardholders weak-willed as to their obligations and spending manners.
American credit card users rushed to spend more and more, speeding up the growth of the national consumer credit debt. The revolving debt cycle has become a nightmare for cardholders and sort of worry for credit card companies.
It would be more natural to assume that holding customers in debt is of more advantage to the creditors but in the long run this approach may cause a substantial revenue loss. The banks have become more flexible and customer-friendly, realizing that one day a family won't cope up with their great balances and simply won't pay.
So, the creditor opts for being repaid at least something. They charge you higher minimum payments of 4% now but let's agree that it will make you more disciplined and reduce the debt repayment period as well as the APR. And, it's natural - the faster you pay off the balances, the less interest you accumulate.
Benefits to both the sides are evident. But there's more good news. The company does understand that a sudden rise in minimum payments may get insolvent households over the barrel. Living from paycheck to paycheck, you are very likely to fail the bill with hiked rate.
What's the solution? Some of the biggest credit card providers, like Bank of America, for example, has already worked extra funds to cover potential revenue losses from defaulting customers.
Do not take default as your first and best option when you feel in tight corner. Complying with the more customer-oriented policy, the creditors can make advances and consent to a reasonable payment plan or even lower the interest on your credit card.
It may be a surprise to you but the bank is more likely to give way than to employ debt collection agencies which methods are frequently judged as abusive and unlawful.
Well, the increased minimum payment requirement is like a shock therapy for many debtors but it is expected to be an effective cure of the ever growing consumer credit card debt.
If you are a customer of Citibank or Bank of America, you must have already been charged the double minimum. There's one simple rule to adhere. Never even think of missing a bill as it will indebt you till the end of your life. Remember that your creditor, pursuing its own profit, is always ready for negotiations!