Going...going...coming back?
June 27, 2011 9:45 AM Subscribe
My credit card balance has been going down -- but the minimum payment has gradually been going up. What gives?
I'm trying to pay down my credit card debt by splitting the balance amongst three cards, and paying down the one with the highest interest rate first. This has been going pretty well -- I have never missed a payment, I never use ANY of the cards, I've only got one grand on the one with the highest rate, and then $4K on the second-highest and $3k on the third-highest. I last checked my credit score a few months ago and it was spotless.
I've noticed, though, that the minimum payment amount on the second card has gradually been going up. It started at $80 a month back in the fall....then crept up to $82. I'd given them a big chunk of change then, though (I got a windfall which I split amongst all three cards), and figured they were thrown for a loop a bit, but then it settled down to $80 again.
Then it went up to $82 again. Then to $85. Then last month it was $90. This month, it's $94.
I do not use this card, and the balance has been going DOWN all this time. But the minimum payment has definitely been getting higher month to month.
Is there some kind of fine-print thing that I could have missed that prompted this, or is something weird going on?
I'm trying to pay down my credit card debt by splitting the balance amongst three cards, and paying down the one with the highest interest rate first. This has been going pretty well -- I have never missed a payment, I never use ANY of the cards, I've only got one grand on the one with the highest rate, and then $4K on the second-highest and $3k on the third-highest. I last checked my credit score a few months ago and it was spotless.
I've noticed, though, that the minimum payment amount on the second card has gradually been going up. It started at $80 a month back in the fall....then crept up to $82. I'd given them a big chunk of change then, though (I got a windfall which I split amongst all three cards), and figured they were thrown for a loop a bit, but then it settled down to $80 again.
Then it went up to $82 again. Then to $85. Then last month it was $90. This month, it's $94.
I do not use this card, and the balance has been going DOWN all this time. But the minimum payment has definitely been getting higher month to month.
Is there some kind of fine-print thing that I could have missed that prompted this, or is something weird going on?
Ghhrarr is right.
I read exactly the same thing in one of the papers this morning, though gosh darned if I can't find the link now!
posted by zizzle at 9:49 AM on June 27, 2011
I read exactly the same thing in one of the papers this morning, though gosh darned if I can't find the link now!
posted by zizzle at 9:49 AM on June 27, 2011
Your agreement may allow for variability in the minimum payment, or you may have received one of those periodical "we're changing the terms" letters and not noticed they'd instituted a change to it. I've learned from experience that you really have to read everything they send you if you want to actually manage your credit.
It's not an unusual change for them to make, anyway, in my experience. Think of it this way: just as you want to arrange things to trend more of your credit balance towards the accounts with the lowest interest rates, they want to trend more of the debt they hold to accounts with higher interest rates. So where possible they are going to try to get the lower rate money back faster so they can borrow it out again at higher rates.
Whenever they change the deal on you the small print will notify you you can cancel the account and pay off the rest at whatever the terms you agreed to were.
posted by nanojath at 9:56 AM on June 27, 2011
It's not an unusual change for them to make, anyway, in my experience. Think of it this way: just as you want to arrange things to trend more of your credit balance towards the accounts with the lowest interest rates, they want to trend more of the debt they hold to accounts with higher interest rates. So where possible they are going to try to get the lower rate money back faster so they can borrow it out again at higher rates.
Whenever they change the deal on you the small print will notify you you can cancel the account and pay off the rest at whatever the terms you agreed to were.
posted by nanojath at 9:56 AM on June 27, 2011
Incidentally they are not going to be "thrown for a loop" by a "big chunk of change" or anything like that. These things are being calculated by a computer based on the day-to-day math of your account balance, whatever the requirements of your agreement are, and their broader policies with respect to various classes of debt (i.e. you are being treated along with a great big pool of people with between such and such debt at between such and such interest rates). An error on their part is possible but not that likely. The specifics may be impenetrable from the outside but it is all surely going according to some algorithm.
posted by nanojath at 10:00 AM on June 27, 2011
posted by nanojath at 10:00 AM on June 27, 2011
Response by poster: I think credit card companies are raising interest rates and minimum payments, maybe in response to the new financial reform law. I never carry a balance but my minimum payments have been increasing as well.
Oh, piffle.
Well, I've already adjusted my automatic payments to pay more than the minimum of card 2 (I was already paying well above the minimum for card 1), and both their interest rates seem to be staying the same (I checked that first thing), so I'll just keep an eye on it; card 1 should be paid off fairly soon, and I'll be able to shift everything I'm putting on that to card 2 as well. Which was the plan all along.
Thanks.
posted by EmpressCallipygos at 10:02 AM on June 27, 2011
Oh, piffle.
Well, I've already adjusted my automatic payments to pay more than the minimum of card 2 (I was already paying well above the minimum for card 1), and both their interest rates seem to be staying the same (I checked that first thing), so I'll just keep an eye on it; card 1 should be paid off fairly soon, and I'll be able to shift everything I'm putting on that to card 2 as well. Which was the plan all along.
Thanks.
posted by EmpressCallipygos at 10:02 AM on June 27, 2011
Response by poster: Incidentally they are not going to be "thrown for a loop" by a "big chunk of change" or anything like that. These things are being calculated by a computer based on the day-to-day math of your account balance, whatever the requirements of your agreement are, and their broader policies with respect to various classes of debt (i.e. you are being treated along with a great big pool of people with between such and such debt at between such and such interest rates).
I was unclear; they actually had someone from the credit department call me, because before I used my windfall to pay down these cards I'd used one of their "transfer funds from another card to this one for 0% interest" to pay down some of the first card, and then I got this windfall and paid off exactly the amount of what I'd transferred in. It was enough to make the credit department call me and ask "hang on, what was this fanciness you did?" That was the first time the minimum went up and then it went down again next month, so I figured it was some kind of weird anomaly due to my balance being bigger for 24 hours or something.
posted by EmpressCallipygos at 10:06 AM on June 27, 2011
I was unclear; they actually had someone from the credit department call me, because before I used my windfall to pay down these cards I'd used one of their "transfer funds from another card to this one for 0% interest" to pay down some of the first card, and then I got this windfall and paid off exactly the amount of what I'd transferred in. It was enough to make the credit department call me and ask "hang on, what was this fanciness you did?" That was the first time the minimum went up and then it went down again next month, so I figured it was some kind of weird anomaly due to my balance being bigger for 24 hours or something.
posted by EmpressCallipygos at 10:06 AM on June 27, 2011
That is a complicated set of changes in a short period, maybe I'm wrong on that one. I've been reading up on the financial rule changes lately and I'm dubious that this is being caused by changes in the law, but maybe someone will come along with a better cite. Anyway, definitely read all those horrible little small print notifications they send you, I've noticed an upsurge in trying to pin new annual fee type charges on accounts lately: depending on how long you will be carrying a balance it may make more sense to cancel it and pay off the rest under your old terms (I've had to do this twice now facing onerous changes to accounts).
posted by nanojath at 10:32 AM on June 27, 2011
posted by nanojath at 10:32 AM on June 27, 2011
CC companies have complex algorithms for figuring out how to extract the maximum money out of their accounts. If your APR on the card in question is fixed at a low rate, then it is in the interest of the credit card company to have you pay off the account as fast as possible, especially if they anticipate an inflationary environment going forward. In the past two years, CC companies have accelerated increases in the minimum payments on certain accounts. Here's a brief blurb on this (also see the comments).
Also, as nanojath mentioned - you should always consider any change in terms as an opportunity to evaluate whether it may make sense to opt out. The upside: you get to keep making payment on previous terms and so retain cash flow flexibility. The downside: your account will be closed (i.e. you cannot make new charges on it, only keep paying it off), and your FICO score will take a temporary hit as your debt will continue to be counted as before, but without being offset by available credit on the card and thus your overall utilization score goes up.
posted by VikingSword at 1:15 PM on June 27, 2011
Also, as nanojath mentioned - you should always consider any change in terms as an opportunity to evaluate whether it may make sense to opt out. The upside: you get to keep making payment on previous terms and so retain cash flow flexibility. The downside: your account will be closed (i.e. you cannot make new charges on it, only keep paying it off), and your FICO score will take a temporary hit as your debt will continue to be counted as before, but without being offset by available credit on the card and thus your overall utilization score goes up.
posted by VikingSword at 1:15 PM on June 27, 2011
Are the days in cycle identical for each month of the minimum payments you have mentioned?
The current algorithm for north america is...
Minimum payment = (100% of interest) + fees + %1 of balance
...which means if the number of days in the billing cycle is different, the minimum payment of two bills will be different even if the balance remains the same.
posted by sleslie at 4:21 PM on June 27, 2011
The current algorithm for north america is...
Minimum payment = (100% of interest) + fees + %1 of balance
...which means if the number of days in the billing cycle is different, the minimum payment of two bills will be different even if the balance remains the same.
posted by sleslie at 4:21 PM on June 27, 2011
Note that 1% isn't universal. Chase bumped my minimum to interest + 5% (!) on one of my cards that has had a balance transfer stewing for some time, but they chose not to on two others that also had low rate balance transfers. 1.5% and 2% are also fairly common.
It is odd, however, that your minimum is changing that much. Mine never deviate more than a couple of bucks if I'm paying the minimum on a given card. Of course, they're all at fairly low rates. Even at 23.99% with a $5000 balance, the spread is about $13 for a variation of two days around 30. (around $3.25/day)
You're not being charged some sort of fee?
I did see one bit of oddness in my new Amex agreement recently: If you pay over the minimum for a while, they reduce your minimum payment by reducing the portion of the new balance that must be paid. If you then pay that minimum payment, they'll increase it back to the usual formula. I guess the idea is to make you feel like you're getting the flexibility to pay somewhat less on occasion than you might otherwise have to.
It's actually pretty easy to calculate what your payment should be, especially if you're not making charges. It's outlined in your cardmember agreement. Some companies calculate interest using your actual balance for each day multiplied by the daily periodic rate (APR / 365) and summing those results. Others take the numerical average of your balance over the billing cycle and multiply that by the DPR and multiply that by the number of days in the billing cycle. Either way, the interest charge is then added to the portion of the new balance you are required to pay (usually 1%, 1.5%, 2%, or 5% in my experience) and any fees you may have incurred.
So if I had a balance of $4000 at 14.99% APR for the entire month I had to pay 1% of the new balance each month and I had no fees, my minimum payment would be ($4000 x (.1499 / 365) x 30) + ($4000 x .01) or $89.29. If it were a 33 day billing cycle the next month, the payment would be ($3910.71 x (.1499 / 365) x 33) + ($3910.71 x .01) or $92.11
This is approximate, given that your payment doesn't necessarily get applied in such a way that your average daily balance is exactly what your new balance is at the beginning of each billing cycle.
I believe double-cycle billing, where you paid interest on the average daily balance of both this month and last month (thus causing you to incur interest even after paying off the card!) was outlawed in the CARD act.
posted by wierdo at 8:41 PM on June 28, 2011
It is odd, however, that your minimum is changing that much. Mine never deviate more than a couple of bucks if I'm paying the minimum on a given card. Of course, they're all at fairly low rates. Even at 23.99% with a $5000 balance, the spread is about $13 for a variation of two days around 30. (around $3.25/day)
You're not being charged some sort of fee?
I did see one bit of oddness in my new Amex agreement recently: If you pay over the minimum for a while, they reduce your minimum payment by reducing the portion of the new balance that must be paid. If you then pay that minimum payment, they'll increase it back to the usual formula. I guess the idea is to make you feel like you're getting the flexibility to pay somewhat less on occasion than you might otherwise have to.
It's actually pretty easy to calculate what your payment should be, especially if you're not making charges. It's outlined in your cardmember agreement. Some companies calculate interest using your actual balance for each day multiplied by the daily periodic rate (APR / 365) and summing those results. Others take the numerical average of your balance over the billing cycle and multiply that by the DPR and multiply that by the number of days in the billing cycle. Either way, the interest charge is then added to the portion of the new balance you are required to pay (usually 1%, 1.5%, 2%, or 5% in my experience) and any fees you may have incurred.
So if I had a balance of $4000 at 14.99% APR for the entire month I had to pay 1% of the new balance each month and I had no fees, my minimum payment would be ($4000 x (.1499 / 365) x 30) + ($4000 x .01) or $89.29. If it were a 33 day billing cycle the next month, the payment would be ($3910.71 x (.1499 / 365) x 33) + ($3910.71 x .01) or $92.11
This is approximate, given that your payment doesn't necessarily get applied in such a way that your average daily balance is exactly what your new balance is at the beginning of each billing cycle.
I believe double-cycle billing, where you paid interest on the average daily balance of both this month and last month (thus causing you to incur interest even after paying off the card!) was outlawed in the CARD act.
posted by wierdo at 8:41 PM on June 28, 2011
Response by poster: It's a standard billing cycle.
I got the bill here:
$4400 balance
12.99% interest rate
32 days in this current billing cycle
posted by EmpressCallipygos at 6:50 AM on June 29, 2011
I got the bill here:
$4400 balance
12.99% interest rate
32 days in this current billing cycle
posted by EmpressCallipygos at 6:50 AM on June 29, 2011
So it should be about $94.10. A 29 day billing cycle would be $89.41 (ish)
Are you sure your interest rate hasn't been increased? An $80 minimum with about $4400 outstanding would be right about a 10% APR. What was the balance, APR, and minimum before the big payment?
posted by wierdo at 2:19 PM on June 29, 2011
Are you sure your interest rate hasn't been increased? An $80 minimum with about $4400 outstanding would be right about a 10% APR. What was the balance, APR, and minimum before the big payment?
posted by wierdo at 2:19 PM on June 29, 2011
Response by poster: An update: last month I paid a little more than the minimum ($120 rather than $94), and on this month's bill, the minimum payment went down again. I'm actually comfortable with making that size payment regularly, and will just stick with that -- I just wanted to make sure that it wouldn't keep rising and surpass that "personal minimum" I'd set for myself, and it looks like it won't.
So I'm declaring this "resolved". Thanks, all -- it looks like things were on the up-and-up.
posted by EmpressCallipygos at 7:27 AM on August 3, 2011
So I'm declaring this "resolved". Thanks, all -- it looks like things were on the up-and-up.
posted by EmpressCallipygos at 7:27 AM on August 3, 2011
This thread is closed to new comments.
posted by ghharr at 9:48 AM on June 27, 2011