# Credit card ‘minimum payment’ is reason for many people building up considerable debt



## chlipps (15 Feb 2010)

I have read many posts over the past few months regarding problems with credit cards.

Can someone clarify what is the current debt on credit cards in Ireland and hence what is the average cc debt?

I acknowledge many have financial issues at the moment due to recession but many didn’t pay credit card bills off monthly either during the boom, when they had the money.

Is this lack of knowledge, reckless spending or what? 

I think it is time that the minimum payment row on the credit card bill be erased and just show the balance. 

I think this ‘minimum payment’ is reason for many people building up considerable debt. Maybe it should be replaced with projected bill next month.

If people saw the considerable increase for projected bill, then I think they would be more pro-active in clearing them.


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## Bronte (16 Feb 2010)

*Re: Credit card minimum payment is the cause of the problem?*

The minimum payment is a device used by the credit card companies to keep people permanently in debt.


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## chlipps (18 Feb 2010)

*Re: Credit card minimum payment is the cause of the problem?*

If this is the case, how come the financial regulator or dept of finance have not put legislation in place to prevent this?


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## so-crates (20 Feb 2010)

*Re: Credit card minimum payment is the cause of the problem?*

Perhaps because they have no incentive to? Nobody has made an issue about it so it is unlikely that either of them would inconvenience banks over it!

I'd agree that it seems to lull people into a false sense that they are meeting their obligations. As the minimum is set not only at the bank's discretion but to the bank's advantage it does seem an unfair imposition on the naive or foolish.


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## Dachshund (21 Feb 2010)

*Re: Credit card minimum payment is the cause of the problem?*

The BBC Radio 4 Moneybox dealt with this problem last October. I've taken this extract from p.10 of the programme transcript here: -

"*[t]he UK Cards Association shows that on a credit card with interest charged at 16.75% APR, where the minimum payment on the balance each month is 2.25%, a £1,000 debt would be paid off in a little over 18 years.*"

"*In that example I gave, a minimum payment of 5% would cut the time taken to repay the debt from 18 years to 7.*"


Pages 7 to 11 of the transcript  have more information.


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## jhegarty (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable *

If they didn't have a minimum payment then people would pay nothing.


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## mf1 (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

Which bit of "I'm spending the (borrowed) money - I have to repay it" do people not get? 

Or that a credit card limit is a limit and not a target! 

Where is the personal responsibility in all of this? Why are we looking always for someone else to blame? 

Easy credit still has to be repaid!

mf


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## Romulan (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



mf1 said:


> Which bit of "I'm spending the (borrowed) money - I have to repay it" do people not get?


 
I agree but if the regulator moved to prevent banks changing credit card limits without receiving a request to do so, should it not have also moved to set a floor on the % minimum repayment.

They are flip sides to a coin to a degree

And if the regulator wanted to really protect people from their own stupidity, they could have required banks to set a maximum cc debt level based on an income calculation.  Just like mortgages.

Athough I have absolute faith in people's ability to find a different way to be stupid - debt wise


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## allthedoyles (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable *

Well I agree that the minimum payment on credit cards is a barrier , which stops some people from paying back extra per month.

I have a Direct Debit set up on our credit card , and each month  the minimum amount is taken.

Sometimes we make cash lodgements to CC during the month , and this affects and reduces the minimum payment DD.

So I asked the Bank , if it was possible to set up a monthly direct debit of , say €100 more than minimum payment , and I was told that , NO - this is not possible .

Also , on two separate occasions few years ago , the bank have written to us , explaining that we were not getting full value from our credit card ,and so they were going to increase our limit . ( each time a siginificant increase )

We had to contact the bank and tell them , NOT to increase our limit without our permission .


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## Hobbs256 (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable *

Some people are viewing their credit card limit as a target, and when this has been reached they applied for another credit card and got it..

How do they calculate the credit card limit?

I am in the process of changing credit cards and requested the credit card limit be reduced and I got a surprise look from the bank staff!!!!


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## igy (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

When I got my credit card the form had a section for how much i wanted to set up to be direct debited, the 10%,20%,.... 100% of the outstanding amount, with a minimum of £5 (must be 6.35 now).
In 7 years it's only been invoked once, as I usually pay it off completely during the next month, but I assume other banks will allow a percentage of the balance to be set as the direct debit amount, no?


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## Janet (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

On my cc statement there is always a reminder that paying only the minimum amount means that it could take you a long time to pay off your debt.  I think anyone who gets a credit card is or becomes aware fairly quickly that you don't get very far if you only keep paying the minimum (knowing it didn't stop me only paying the minimum for a long while though - but that was no-one else's fault but mine).  

Don't think Irish cc providers are allowed increase your limit without you requesting it any more are they?  I know it was part of what helped get me into trouble years ago - I just kept accepting it and telling myself I wouldn't use the extra credit but of course I did.  When it got to the stage that I could have, technically speaking, bought a car using my visa, I had to just say, no, this is getting ridiculous. 

And, yes, you do get some stony silences on the other end of the phone when you try to get your limit reduced these days.


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## Fiskar (21 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Hobbs256 said:


> Some people are viewing their credit card limit as a target, and when this has been reached they applied for another credit card and got it..
> 
> How do they calculate the credit card limit?
> 
> I am in the process of changing credit cards and requested the credit card limit be reduced and I got a surprise look from the bank staff!!!!


 

Ditto, Asked for mine to be halved 6 years ago and got the same raised eyeborws/disbelief. Still have the same limit even on a joint use credit card, paid off in full every month.


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## Romulan (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Janet said:


> When it got to the stage that I could have, technically speaking, bought a car using my visa, I had to just say, no, this is getting ridiculous.


 
Lots of Laughs!  I remember they used to keep upping my limit and I said I would wait to see if it went high enough to buy a car.

And it did just before the law changed.


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## Bronte (22 Feb 2010)

*Re: Credit card minimum payment is the cause of the problem?*



chlipps said:


> If this is the case, how come the financial regulator or dept of finance have not put legislation in place to prevent this?


 
Now there's a good point, why don't the powers that be ensure that financial institutions act responsibly seeing as there is a certain percentage of the population who aren't able to manage their own finances. Even responsible people can get caught out by the credit card company tricks.  But do the powers that be act in the interests of the financial instituitions or in the interest of consumers and society in general.  Mmmh, difficult question. 

I actually think they should put a rule in place whereby the minimum payment means you will pay off the debt in a reasonable time.

I have the same problem with my Mastercard as another poster. My bank won't allow my minimum payment to be more than 10% which I think should also be outlawed. I'd rather it was 100%. But I get around it by putting in a lump sum when I purchase something.

At least the rule on increasing limits has been changed as far as I know so that it can only be increased by a customer asking for it to be increased.


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## AlbacoreA (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable *

I think, anyone that doesn't try to pay off their credit card as fast as possible isn't going choose a credit card with a month only credit. (100% min payment). I wonder what the percentage is of people who clear it every month, every three months, 6 months etc.


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## Bronte (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

Sorry I should have been more clear, my direct debit is only allowed to be 10% rather than 100%.


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## MANTO (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

So the minimum Direct Debit payment can only be a percentage - so what. There is nothing stopping you from paying extra.

Its not the banks / regulators responsibility to manage your debt.


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## AlbacoreA (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



chlipps said:


> ...
> 
> I think it is time that the minimum payment row on the credit card bill be erased and just show the balance.
> 
> ...


 
Its not a bad idea...

I always thought paying the minimum payment avoid interest, but I realise thats not always the case.


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## DrMoriarty (22 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Bronte said:


> My bank won't allow my minimum payment to be more than 10% [...] my direct debit is only allowed to be 10% rather than 100%.


I've never heard of this. Do you mind my asking which bank your Mastercard is issued by?


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## chlipps (25 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

I pay mine off each month without fail... never miss a repayment



mf1 said:


> Which bit of "I'm spending the (borrowed) money - I have to repay it" do people not get?
> 
> mf


 
I think peple know that it must be repaid but are not conscious of the fact that they are being fleeced.


Quoted by Bronte...''I actually think they should put a rule in place whereby the minimum payment means you will pay off the debt in a reasonable time''.... That should/would help...would need to be set at six months max or so as otherwise considerable interest paid. It would be better means though to control minimum payment calculation as any substantial amount borrowed would have to be cleared in six months.


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## Protocol (26 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



AlbacoreA said:


> Its not a bad idea...
> 
> I always thought paying the minimum payment avoid interest, but I realise thats not always the case.


 
I am surprised at this.  I assumed everybody knows that if you don't pay off your balance in full, you are charged interest on the full amount from the date of purchase.


See here for CC data: http://www.centralbank.ie/

CB monthly stats:

[broken link removed]

Here is the actual pdf with the monthly stats:

[broken link removed]


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## Protocol (26 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable *

End 2009 data.

2.17m personal cards, outstanding bal = 3bn.


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## MANTO (26 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*

wow!


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## chlipps (26 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Protocol said:


> I am surprised at this. I assumed everybody knows that if you don't pay off your balance in full, you are charged interest on the full amount from the date of purchase.


 
That is the issue... i know many that just focus on clearing the minimum payment and think they avoid interest by doing so. 

Thanks for the stats. 3bn in debt on credit cards is ridiculous.. I think Financial regulator at fault here for not having better control... better limits to lending and better ways of making sure debts paid faster e.g. Bronte's suggestion of a time limit as per earlier post.


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## AlbacoreA (26 Feb 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Protocol said:


> I am surprised at this. I assumed everybody knows that if you don't pay off your balance in full, you are charged interest on the full amount from the date of purchase....


 
I think theres some variation on different cards and promotions etc.


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## Blackberry (1 Mar 2010)

*Re: Credit card ‘minimum payment’ is reason for many people building up considerable*



Protocol said:


> End 2009 data.
> 
> 2.17m personal cards, outstanding bal = 3bn.


 

Sounds like alot, however people forget that credit cards are essentially a payment tool and approx. 60% of all cardholders pay their total balance in full each month.


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