Chase minimum payments going up from 2% to 5%

[TwixVoy]

Just a heads up.... many people on the finance forums I frequent are reporting getting letters from Chase about their minimum payments going up from 2% to 5%. Apparently this is only for people who have some kind of balance transfer offer. I fully support this as people need to get out of debt ASAP, but I realize in some situations it could cause defaults.

Yet some people even in the middle of this who should have learned from other peoples mistakes are still trying to get in to debt. For example, my neighbor has a 3 year old car. It works FINE. She was telling me today that she wants to move up to as she put it "a serious car". Whatever the hell that is. She's already figured out the payments on her "serious car" will be $400 to $500 a month (and thats if she gets a 0% APR loan) for 5 years, and yet she complains she has trouble paying her bills as it is. I am eager to see if her bank is stupid enough to give her the loan.

[regnaD kciN]

1. Actually, from what I understand, it's a bit trickier than that...

This apparently started several months ago. This is, as you indicate, only targeting people who took advantage of Chase's constant "balance-transfer" offers at a very low interest rate for the duration of the loan (i.e. not after just a six-month period or whatever, like most banks offer). You mention this could cause defaults in some situations. Actually, it's designed to cause defaults, because people who make those balance transfers are generally trying to get out from under high-interest debt on another credit card. Whatever they may save in lower interest rates in going to Chase will wind up costing them much more in monthly payments than if they had stayed with their old provider. (Yes, it's true that, if they kept up the new minimum payments for a number of months, they'd get out of debt much faster, but more than doubling your minimum payment is generally something that can't be borne by anyone already in debt, even for a month or two.) Thus, the second part of Chase's (devil's) bargain: consumers can keep the minimum payment at 2% (or 1% of the principal plus finance charges, whichever is higher) if they agree to waive the previously-promised balance-transfer rate, and let Chase set their interest rate wherever they want.

So, in essence, the debtor is faced with two unpalatable choices: either a) stay with the initial (say, 3.99%) interest rate, but get your minimum monthly payment jacked up to a level you probably won't be able to pay, or b) waive the rate and keep your minimum payment at a lower amount, but allow Chase to jack that 3.99% interest to 12%, or 15%, or 20%, or... Not quite what consumers were expecting when they took advantage of Chase's "generous" balance-transfer offer. In other words, a bait-and-switch that will cost the individual debtor plenty, and gain Chase a new windfall source of profit.

:grr:

[BR_Parkway]

2. They have some brilliantly creative folks working there who

never cease to amaze me in their ability to come up with ways to remind me what a suckass company that is.

[ThomWV]

3. If more posts got responses like this DU would be hands down the most informative site on the Web.

[Statistical]

4. Looks like Chase is pulling a FAST one but

in general I think CC minimums should be higher.

They should be regulated by Congress.

I would go with the higher of:
3% as an absolute minimum.
High enough to ensure repayment within 4 years based on current interest rate.

Having minimums of 1% or 2% of the balance when card is at 24% (=2% monthly) is used to keep people permanently in debt.

[TwixVoy]

6. Hm

If a payment increase from 2% to 5% pushes them over the edge they were probably going to go over it at some time anyway. I just don't see WHY that would be the goal. What is better to have? Someone who pays you a little or someone who decides not to pay you at all?

[Pithy]

5. it's not just Chase

Many cc issuers are going to this type of step. In this economic environment, it's wise to pay at least twice the minimum due - we try to always pay 4-5X the minimum or more. But I do understand that this makes it tough for people who are barely hanging on by their fingernails. Paying ONLY the minimum due on your credit cards is a major flag for creditors and may result in credit limit decreases or account closure.