Chase Minimum Payment Hiked To 5%, Now What?

Posted by Home Morgage | Personal Finance | Saturday 27 June 2009 2:18 pm

I came across “Chase Hiked My Minimum Payment To 5 Percent!” on The Consumerist today. This is bad news for Greg and his wife, because this hike increase their minimum payment $558 to $930 — which causes them significant financial stress. Although I sympathized with the dilemma that Greg and his wife are facing, I think Chase is doing their cardholders a big favor. Assuming their interest rate is 19.99%, it would take Greg and his wife 84 months to paying down a balance of $25,000. This would cost them $21,872 in interest! By increasing the minimum payment to $930, their credit card debt would be paid off in 36 months with only $8,480 in interest.

Note: Based on additional information (see comments). Chase is raising minimum payments on customer with low interest rates to force them to take higher rate in exchange for a lower minimum payment. I fully agree with comments below that this is just unethical and devious on Chase’s part. However, I still believe in the main point I am trying to make: in general, minimum payment should be higher because the current low minimum payment is designed to keep cardholders in debt as long as possible.

Chase Visa Credit Card

Personally, I think credit card companies should calculate the minimum payment based on 36 months pay off period. I think it’s more responsible. Also, this will force the consumers to see their increasing minimum payment amounts and hopefully sway them toward spending less.

How Can Cardholders Deal With This Hike If They Can’t Afford It?

How can cardholders that are in the same situation as Greg and his wife handle this minimum payment hike? I know it’s not easy, especially when a job loss is involved. Here are some ideas that will hopefully help folks that are facing this dilemma.

Cut your expenses until it hurts

Start a budget and track your expenses. Go over your budget carefully and reduce your expenses like a mad man. Do you need that cable TV? iPhone and the mega expensive plan? Playboy subscription? extra car? daily Starbucks coffee? Probably not. If you have any of these, you can afford to pay the higher minimum payment — you just choose not to do it.

More ways to ease the pain

But what if your expenses are already at the bare bone? Extra income would be nice, but earning extra money takes time and you can’t afford to wait too long. Building extra income will have to wait until you can fix the immediate problem. So here are a few ideas:

Borrowing from Whole Life Insurance. If you have one, you may be able to borrow against the cash value of your whole life policy. However, this option will lower you death benefit and significantly stunt your insurance policy value. You may even consider liquidating your policy to free up your cash flow and take care of your immediate financial problem.
Transfer you credit card balance. You can transfer your balance to a different company that charges lower minimum payment. This is a short-term fix, but it’s still better than being delinquent, paying late fee, and having your interest rate hiked.
Borrowing from Lending Club. Borrowers with good credit can access up to $25,000 for as little as 7.88% APR. Realistically, you probably won’t get the best advertised rate, but the rate you get might be better than what Chase is charging. The loan term is 36 months, but the minimum payment will be lower due to the lower interest rate.
Home Equity Loan. If you own a home, you may be able to take out a loan to pay off your credit card debt. Of course, you’re trading unsecured loan for a secured one and risk losing your home if you can’t keep up with the payments. It’s an option, but think carefully before going down this road.

More extreme ways to deal with the problem

If the options above are not working for you, you may want to consider debt settlement or bankruptcy. However, many people choose not to take these options as a way out due to personal reasons.

If that’s you, you can try borrowing from your 401(k). If you choose to borrow, remember that you are giving up a lot of benefits — e.g., future financial security, bankruptcy protection, potential growth, etc. And if you lose your job, you’ll have to find a way to pay back the loan or risk paying the early withdrawal penalty and taxes.

It’s Good, but It Hurts

In the end, I think this is a great change that will help everyone in the long-term. Certainly, it is acting as a wake up call for a lot of people. So what do you think about this minimum payment hike?

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