Warning From My Dad: Beware The Minimum Payment Hike
My dad (not pictured) is one of those guys stuck on an endless credit card treadmill, pretty much maxed out to the hilt and able to cover monthly minimum payments but not much else.
So it hit him pretty hard when Chase told him it was doubling his monthly minimum payment rate on a card (on which he's carrying a $7,500 balance) from 2.5 percent to 5 percent of his total balance. The leap from payments south of $200 to $375 could be a budget-breaker. He called Chase customer service on several occasions and went as high up the escalations ladder as he could manage, but they told him nothing could be done — even though he has other Chase cards that aren't getting monthly minimum hikes — and the change would take effect in 45 days.
A balance transfer isn't an option because his other cards are maxed out and no new card he applies for will give him a limit of more than $500. He's too scrupulous of a guy to ever go into negotiations to lower the bill or even consider declaring bankruptcy. Obviously you can tell from his financial situation that he's not exactly a financial wizard, but he's no dope, either. Just a middle-class guy who has ground his way through decades of modest work for modest pay in retail and clerical jobs, busting his hump — and nest egg — along with my mom to put three kids through school. (Although it is frustrating how he ignores my money-saving advice I'm always dropping on him — Cut the land line, old man!)
Dad suspects Chase's strategy is to make it so he can't afford his minimums, forcing him to miss a payment so his balance starts to skyrocket, and I think he's on to something there. Any brilliant advice for my dad out there?
(Photo: me and the sysop)
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Please...can we just delete this picture out of the database of pictures that get used? I hope to never see it again.
"pretty much maxed out to the hilt... his other cards are maxed out... Any brilliant advice for my dad out there?"
Yep, tell him to stop spending more than he earns. Even better yet, tell him to spend less than he earns.
"He's too scrupulous of a guy to ever go into negotiations to lower the bill or even consider declaring bankruptcy"
Ummmmm, who is being scrupulous for exactly? The company that is hiking up his minimum payments so they can gouge him even more?
Screw scruples. Declare bankruptcy.
I'd agree with bagupity and GMFish. See if you guys can help him out on that card and tell him to spend less. I'm no financial wizard but it's the best thing I could come up with.
@bagumpity: That would be one solution, IF they could get dear old Dad to swear off credit cards once and for all. Otherwise, it makes little sense to throw good money at this problem, only to have the old man back in the soup in a year or two.
Hooray, she's back. I can't wait for the dozens of comment s complaining about the picture. So much fun.
Oh, and tell your dad to cut his expenses, and his three ungrateful kids should help him pay off his debts in exchange for the college education.
Dad might not listen to you (how much did you really listen to him when you were growing up?), but he might be open to something at the AARP site. It includes a link to a PDF that has the sort of info usually found here at Consumerist regarding restoring credit and financial counseling. [www.aarp.org]
The card company just wants their money. If you're dad can't afford $375/month - there is a problem. I have some odd jobs around my place he can do for $10/hr.
I'm much, much younger than he is and fell into the "free money!" trap when I got into college and got a few cards.
It got to the point where most of my payments were barely covering interest. Rather than jump on the bankruptcy train, I signed up for one of those consumer credit counseling services. You know, the kind that brag how they can get your rate to 0%? Well, it wasn't that low, but the rates were lowered enough and the accounts were closed so I couldn't spend any more that I was able to unbury myself in about 3-4 years. And I'm proud to say that my credit score right now doesn't really reflect at all that hole I dug myself into and crawled out of.
Before looking at bankruptcy, have him check into CCCS. At least you and your siblings' help with his debt will get it paid down quicker.
Scruples schmuples. He needs to get some help. Find a credit counselor who can help him get on a plan to lower his interest rate and monthly payment and keep from using the card in the future.
@CreativeLinks: $7500 is completely NOT enough money to be worth declaring bankruptcy over, in my opinion. I don't think I'd ever even consider it unless I was like $100K+ in the hole, and even then probably only if I didn't have the potential future earnings to do it another way.
It would be much easier and better to just stop spending more on the credit cards immediately, and find a way to refinance the debt so that it's cheaper to carry while it's being paid off. Whether that's a bank loan, balance transfer, or loan or gift from family, $7500 is not enough to declare bankruptcy over.
@GMFish: Okay, it may've been funny the first time, but you guys can stop complaining about the picture now.
It's just a person with a credit card. Sorry we can't all be beauty queens.
Where's Dave Ramsey when you need him?
Can we please retire this picture already?
Is this one of those things where he can decline the new terms of his account, stop using the card, and keep paying off the balance under the old terms?
He can go look at some of the local credit unions where he is. You're more likely to find a loan officer who'll work with you to set up a loan from the credit union as long as you close your credit cards so you can't run them up again. Once you pay back that loan he can probably get a card from the credit union or just open a personal line of credit.
The CU I belong to (Verity in Seattle) has a free financial counseling service that'll work with your creditors to reduce payments or interest rates, but you have to agree to close your card accounts in order for them to help.
Personally, I'd rather pay off the cards and close them and have a set three or four year payment plan with the credit union.
Maybe he can do what I'm about to try and do: get an unsecured loan from his bank or credit union for the amount he has on the credit card. Pay off the credit card using the loan money. If he thinks he can resist spending any more on the card, keep it open to keep his credit score up.
I figured it out and for my high balance, I will pay the same amount I'm paying in minimum payments now on a loan and it will be completely paid off in five years. Suffice it to say, I have a huge balance on my CC.
Now to see if I can get an unsecured loan for that amount. *fingers crossed*
Read this post
It's about a couple with the same problem. I found a credit counseling site that says Chase actually has a pretty lenient program for customers who are having trouble making payments, so if you dad enters a credit counseling program he may be able to negotiate a lower minimum monthly payment.
advice?
He's too scrupulous of a guy to ever go into negotiations to lower the bill...
check the pride at the door. being in debt is not indicative of your personal success! as a society, we mostly measure success based on how much money & stuff a person has, but that's just a charade. even the rich hit some bumps along the way - look at donald trump - he's filed personal bankruptcy TWICE (so far)! it still doesn't keep him from blasting his face all over television. why? IT'S BUSINESS!
that said, bankruptcy is a last resort. call up chase (et al) & start negotiating! you are not alone & they frequently work with people in trouble. the worst they can say is NO. & if that's the case, maybe it's time to start looking for a credit counselor (though you have to be awful careful who you select). here's some important info --> [www.ftc.gov]
if you decide on credit counseling, be sure to use an approved counselor for your state on this list --> [www.usdoj.gov] , that way if bankruptcy is necessary down the road, you've fulfilled the pre-bankruptcy requirement.
& if you go thru all that & are still falling behind, maybe it's time to consider the big B. if that's the case, seek advice. consult with MULTIPLE lawyers/advisors to make sure it's within your best interest & to ensure that your interests are protected.
There may be an option in the letter he received to opt-out by closing the account. He would no longer be able to charge new purchases, but could continue to make payments on the original terms.
No guarantees that this option will be found. But I've received such an opt-out along with a notice a few years back informing me of an interest rate hike.
If you do find it in the find print, take it! If not, ask nicely about the possibility of making such an arrangement. Cancelling an old line of credit will have adverse effects on his FICO score, but it sounds like it's probably already pretty bad and likely to get far, far worse if some immediate action isn't taken.
If and when he succeeds in securing his existing payment structure in exchange for closing the account, encourage him to find a way to pay even 10% more than his minimum payment.
On that note, a way you can help him out financially while not totally bailing him out, thus still affording him some pride and financial empowerment, would be to offer a matching dollar amount on his payment above the minimum.
So if he succeeds in keeping his minimum monthly payments around $180/month, and he can come up with $200/month, you'll throw in another $20 to the bill making the payment $220.
@HurtsSoGood: I second this - throw the old man a bone and help him out. Take the card(s) away maybe until they're paid off if you don't trust him to not get himself back into debt.
@CreativeLinks: Increasing a minimum payment is somewhat hard to call "gouging", considering that in the long run it means the debt would be paid down sooner with less interest.
He needs to consolidate that debt at a lower rate and burn up those cards. I'd consider a 401(k) general purpose loan well before bankruptcy - current interest rates are low and it's better than sitting on the treadmill. Also, close the credit card accounts. Tanking his credit score is probably a good idea in this case to prevent future borrowing.
Your dad is being punished for not be aggressive enough in fighting against the latest changes in law which adds new limitations on how much the credit cards can do to screw your dad over.
Cut the landline?? I'd actually say cut the cell phone which costs at least twice as much, if not more.
Either way, it's sad to see that your father is in such a state of financial hardship. I think declaring bankruptcy at this point is really the best thing to do if he's maxed out on his credit and can't get by without it.
Your exactly right about them tightening the screws on existing borrowers, they are preparing to milk everyone dry these last few months before the new regulations kick in.
I paid off all my debt quickly when I saw all these new regulations actually being passed. Sure they are good for us in the long run, but I'm now afraid that credit card companies will become even more sneaky and find new and devious ways to rip us off. These companies are worse than the crooks who commit petty crimes every day. Just look at Madoff, do you think he was able to perpuate his fraud for so many years by himself? No, the corruption goes all the way to the top of most of these fortune 500 companies. Everyone is in on it as long as the money keeps rolling in the door every is quiet and turns a blind eye to the blatant lies.
My advice to your dad, avoid debt at all costs, pay off your balances as quickly as possible, and don't give these crooks a penny more in interest. They are getting rich off of all of our own conspicuous consumption. The american consumer ignorantly lets him/her self be raped by the consumerist culture of America.
It's sad really, the rich get richer and the poor get poorer. If the middle class continues to shrink this country is going to end up in communism.
@wooster11: If you don't use the phone much, prepaid cell phones can be much cheaper than a landline. Regardless, having both is a waste of money in my opinion.
@downwithmonstercable: Yes please. Every time it comes up the comments turn into Titgate all over again. It's not a flattering picture. please make it stop.
I wonder if they are only targeting cards when the card holder has only been paying the minimum.
@Unsolicited Advice: Bad commenter. Don't ever borrow against your retirement. The risks are too high compared to the gains. Instead, either find a reputable Consumer Credit Conseling Service (CCCS) and get their help or negotiate with them. Negotiating is not unscrupulous. It's a time-honored way of working things out.
@Unsolicited Advice: You have no idea if his current cards have a bad rate. If they are like 6% consolidation wouldn't make any sense. And if the consolidation loan is for 10 or 15 years instead of 30, he will be paying more even if the interest rate is the same. He would be back to his current problem.
Your dad is doing himself no favors by only paying 2.5% a month. At that rate, it could take decades to pay something off. The transition is hard, but getting to 5% is a step in the right direction in discouraging people from getting into too much debt.
@CreativeLinks: I was going to say "Scrupulous? Usury is a sin according to the Bible!!"
Negotiate that interest rate/payment down as much as you can! You'll be saving the credit card company's soul!!
Definitely a Myspace angle, though it doesn't accomplish the purpose of a Myspace angle, which is to make the subject look better
Please, please don't use this picture again
I wouldn't assume that Chase is hoping he'll miss a payment. They may just see him as a risky customer, and they want to get that debt cleared faster.
It's a safe assumption that a general-purpose 401(k) loan is cheaper than his credit cards.
@czadd:
Unless he's close to retirement, it's likely that the costs of bankruptcy are higher than the potential lost retirement income.
@Unsolicited Advice: most FAs say NEVER, EVER, EVER borrow against 401(k). i'm of a different mindset - i think there's certain circumstances where it's acceptable (i.e. - you're in danger of losing your home).
this, however, is not one of them. this debt sounds like it's 100% unsecured. why should he compromise his retirement when he could discharge some/most/all of this debt in bankruptcy (as a last resort, of course)?
if the lender is unwilling, & a counselor is unable, a person should seek protection under the law before tapping their "golden years" income.
@GMFish: oooh, I know! Let's tell someone who's come looking for help that they shouldn't have gotten themselves in trouble in the first place, and then feel morally superior about it!
@neekap: Ditto. I did the same thing. My credit score is still golden and I was able to pay off all my debt in a reasonable time. I would also suggest this as a viable option before bankruptcy. Just make sure you use a reputable credit counseling service.
@Chongo: Debt counselling would seem to be a good fit for this scenario. Make certain to get a nonprofit organization, not a for-profit one, to do the counselling work.
I've heard it said that these debt counsellors don't do anything you can't do yourself, but I found otherwise. My banks wouldn't work with me, much like the problems the OP's dad is having. The banks take it far more seriously when they hear from one of these organizations.
I feel for your dad. Can you and your siblings scrape enough cash to pay off the loan completely? I mean, if the guy busted HIS hump they way you described, a little payback might be in order.