In response to new government regulations on credit cards, credit card companies are changing their minimum payment rules and their interest rates. In general both are going up.
I don’t have many credit cards and only use one regularly, but my rarely-used Sears card is the first one to send me details on changes that will be effective in September. My nominal interest rate will rise from 28.8% per year to 29.9%. The actual yearly rate with monthly compounding is going from 32.9% to 34.4%. These rates are extremely high, but not too different from each other.
For balances over about $1000, the minimum payment is going from 3% of the new balance to the sum of the month’s interest plus 1% of the new balance, which works out to about 3.5% of the new balance. This is about a 17% increase in minimum payment.
The part of the new minimum payment calculation that is 1% of the new balance is actually the maximum of $10 or 1%. This may not seem like a big deal, but it significantly reduces the length of time it takes to pay off a balance assuming no new purchases and only paying the minimum. This has been a common source of criticism of credit cards, and the new minimum payment shortens the pay-off time considerably.
These changes seem quite modest. I suspect that the majority of consumers will find their interest rate and minimum payment changes fairly painless, but there are likely to be outliers who will see big changes that they have difficulty handling. Of course, it is best to pay off cards in full each month, but it seems that many can’t or won’t follow this sage advice.