Minimum Payments Go Up

Analysis:

This story was about how starting with the New Year, credit card companies would raise the minimum monthly payment from 2 percent of the total balance to 4 percent. The story features a young woman who says that she can barely afford her current credit card payments and also two financial counselors. These counselors give some very general advise on how to avoid credit card debt such as “You got to spend less than what you make” and “if you have a credit card debt, pay much more, as much as you can beyond the minimum payment due.” Later in the piece the financial counselor advises “Extra jobs, sell stuff, sell that brand new car, by a smaller used car.” Other than that, the only other useful information a viewer would learn from this piece is that, to quote the reporter: “If you are unable to afford the larger minimum payments, contact the credit card companies and try to negotiate a lower payment of interest rate.”

One piece of information not included in the story is who is responsible for making the decision to raise the minimum payment percentage. This change is being enacted by MBNA, Citibank and Bank of America, and the rest of the industry is expected to follow suit. This change is being enacted in response to pressure from the Government, specifically the Office of the Comptroller of the Currency, which claims that this change will help people reduce credit card debt. Also not mentioned in this piece is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This legislation, passed last year, with much financial backing from the credit card industry, makes it harder for people in debt to declare bankruptcy. A reasonable question from a reporter might be what is the effect on consumers who are now faced with higher monthly payments and fewer options in terms of personal bankruptcy when they can’t make these payments? Another question the reporter could ask is what are the responsibilities of the credit card companies in making sure that they are not extending or marketing credit excessively or irresponsibly to consumers?

Story:

WZZM 13 newsreader – minimum payments customers must make on a major credit card balance will double after January first. It may help some people get out of debt sooner, but others wonder how they will afford those bigger payments. WZZM 13’s Phil Dawson joins us now with details.

Reporter – Well Juliet, under the previous policy the minimum payment on a credit card was 2 percent of the balance. It’s going up to 4 percent and all of a sudden it means many people will need another few hundred dollars a month to pay toward their credit card debt.

Reporter – Doubling the minimum credit card payment from 2 to 4 percent of the balance is going to put pressure on many people with unpaid debt.

Allison Huffman (credit card user) – Because I already pay almost three hundred dollars a month, just for one credit card, and I have like five.

John Kremer (financial counselor) – There is going to be a lot of hardship out there, as payments double. A lot of them are just living paycheck to paycheck. And now it’s just…it’s going to be tough.

Reporter – At Thornwood Baptist Church in Ada, a dozen couples are learning how to reduce debt and build wealth with video lessons from financial expert Dave Ramsey. Class leaders say lesson one is stop using credit cards.

Kremer – You have to change the way you think. You got to change the ways you do things. You got to spend less than what you make.

Don Michael (financial counselor) Now the key is if you have a credit card debt, pay much more, as much as you can beyond the minimum payment due, get out from underneath that Albatross as soon as you can.

Reporter – Making the now mandatory 4 percent payment on a ten thousand dollar credit card balance, will pay off the debt in fifteen years, instead of fifty and save 20,000 dollars in interest. There is benefit to the consumer, they just need to find a way to make the payments.

Huffman – I’ll have to work more to make more money. I already live by my paychecks so I’ll have to work a whole lot more.

Kremer – Extra jobs, sell stuff, sell that brand new car, by a smaller used car. There are a lot of things they can do, but do they want to do it?

Reporter – If you are unable to afford the larger minimum payments, contact the credit card companies and try to negotiate a lower payment of interest rate. Juliet, most credit card companies would prefer less than the minimum than no payment at all.

Newsreader – Makes sense, thank you Phil.

Total Time: 2 minutes 24 seconds