The most common payment plan for a credit card company is for you to pay an amount that is equal to a certain percentage of your total balance. A very common minimum payment percentage is 3% of the total balance +1% of the principal. What this means is that if your total balance is $3,000, then you will pay $120 a month for your credit card bill.
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It was the Credit CARD Act of 2009 that brought in the requirement of the credit card companies to apply at least 1% of your payment to the principal to help you pay off your credit card balances. If you had credit cards in the past, and always paid the minimum monthly credit card payment prior to this act, then you probably noticed that each month you seemed to owe more than the month before, even if you weren’t using your card.
Can my credit card company change my minimum payment without notice?
According to the Federal Reserve, a credit card company cannot change the terms of your agreement without putting it in writing at least 45 days prior to the change. Putting the changes in writing will mean that the company will send you a letter to inform you that a change will be made to your terms.
At this time, you have the right to cancel your credit card without any penalties because of the changes they are making your card. If your terms state that your minimum payment is 3% +1% for the principal, then the credit card company must honor that or provide you with the change in writing.
It is in your best interest to pay more than your minimum payment on your credit card. Even with 1% of your total payment going toward your principal it will still take you a much longer time to pay off your credit card than if you added $5.00 to your payment every month. You should consider using a credit card payoff calculator to find out how long it will take to pay your balance with different monthly payments.
Are there laws saying how much a credit card company can charge as a minimum payment?
A credit card company can require any amount that they want as your minimum payment. However, they must state in your terms and conditions how much that amount will be. The bottom line is, there cannot be any surprises in your bill; everything must be stated clearly in your terms and conditions or it does not apply.
There are laws determining how much a credit card company can charge you in fees, which you can find at the Federal Reserve link posted above. Your credit card company cannot change your fees that are defined by law at any time.
If your credit card company charges more than the standard 3% or 4% that you find with most credit card companies, and you find yourself in a position of being unable to make your payment, you may be able to negotiate a smaller payment with your credit card company. In most cases, you can negotiate with credit card companies, if you have a long history of making payments on time.
My credit card company says I have to pay off the entire balance, is that legal?
Many credit card companies include in their terms and conditions the caveat that at any time they can demand full payment of your entire credit card balance. Some credit card companies reserve the right to do this if you miss a certain amount of payments. Others do not have this in their terms at all.
If this information is posted in your terms and conditions, it is perfectly legal for your credit card company to demand payment in full for any reason at all. American Express is synonymous for having this in their terms and conditions. What’s more, they are a company that makes this demand, if they see that your credit score is reduced or they feel like you’re incurring too much debt.
Credit unions also often have this stipulation in their terms and conditions. Reading all the fine print in your credit card contract will ensure that you are not surprised by unexpected requirements from your credit card company.
If your credit card company demands full payment of your balance and it is not part of your terms and conditions, they cannot make this demand of you without giving you a 45-day notice in writing. You can cancel your credit card prior to the 45-day mark. The benefit to this is that the credit card company cannot institute those changes if you cancel your card before the changes take place.
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