Pay off your credit cards NOW…
Monday, August 22nd, 2005…if you can.
1. Credit card minimum payments will increase on most credit cards to 4% of the total balance over the next couple of months.
2. On October 17th, the remaining provisions of the new bankruptcy law will come into affect.
3. Credit card issuers have already started putting into place harsh punitive measures for payments that are even a day late, even if they’re from cardholders with a long history of on-time payments.
Right now, credit card minimum payments run between 1-2% of the account balance. Let’s say that you owe $10,000 on your cards. Right now, your minimum payment is $100-$200 a month. Between now & October, it will increase to $400 a month. For many households, this will be the straw that breaks the camel’s back.
Meanwhile, these same households that will find themselves unable to cover their bills will have a much harder time saving themselves by declaring bankruptcy. For example, under the new law, filers will have to meet with a credit counselor for 6 months before they can even file for bankruptcy. That means 6 months of defaulted payments and harassment by credit collection agencies. And THEN, before they can have their debts discharged, they’ll have to attend money management classes at their own expense. (You know… with all that extra money that’s lying around.)
Credit card issuers are already putting into place new rules like big increases in late fees and APRs that can jump to over 30% if you’re late just one time. They’re also doing bizarre things like moving due dates backwards instead of forwards if the due date falls on a weekend.
(Personal note: I make online payments. I intended to deposit money Friday for my payment due Saturday. Under the old rules, I would have been given a grace period of sorts until the next business day, which would have been the same day my deposit cleared and my payment processed. Under the new rules, for Chase, at least, I was considered late at 3pm central time on Friday. FRIDAY. The day BEFORE my payment was due.
I do incredible things to ensure that I pay my minimum on time, no matter how hard things get. I’ve been with Chase for over 10 years with a perfect payment history. Yet, as of today, I have a $39 late fee and a new extreme APR.)
All this adds up to a huge widening of the gap between rich and poor, and an overall economic slowdown. The Christmas shopping season, which most US retailers depend on to make it through the year, looks like it will be less than merry for them.
Retailers like Wal-Mart, who depend on the poor for their profits, are already reporting losses as a result of rising gas prices. Many of their customers are simply too poor to even drive to Wal-Mart anymore!
(On a side note, Wal-Mart plans to combat this in part by trying to woo upscale shoppers with high-end items. That’ll be a tough sell!)
To me, this looks something like an economic tsunami headed our way. Yet, when I surfed the web looking for more information this weekend, most of what I found was smug rhetoric coming from people who don’t know what hard times are.
They said, “You shouldn’t have run around charging up debt and living beyond your means.”
They ignored the large number of Americans who have little or no health insurance and must pay for health emergencies on credit.
They said, “You should have made larger monthly payments.”
They ignored the fact that real wages have dropped, and that making more than the minimum payment has become impossible for many.
They said, “You shouldn’t have used your card for non-essential purchases.”
They ignored how credit cards are handed out like candy to college students.
But most of all, they ignored the large number of Americans walking a fine line between scraping by and losing everything. My prayers go out to all of you.