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How to Deal With a Minimum Payment Increase

Chase recently announced a 3% increase in their monthly minimum payment for certain credit cardholders. More credit card issuers could follow. Unfortunately, there's no option to reject the change, so unless you get rid of the balance, you're stuck with the higher payment. Here's what you can do if your card issuer increases your minimum payment.

Stop making purchases on the credit card.

The last thing you need is a higher balance on a credit card whose minimum payment is already difficult to afford. Put the credit card away and avoid using it until you've paid your balance off. Then, make small, affordable charges on the card and pay the balance in full each month.

Pay the entire balance.

If you don't have a balance on your credit card, a minimum payment increase won't affect you. If you're actively working toward paying off your credit card balance, you'd be making higher-than-minimum payments anyway. Since your minimum payment is a percent of your credit card balance, reducing your balance will lower your minimum payment. Ultimately, getting rid of credit card debt completely is the best way to avoid credit card changes like minimum payment increases.

Transfer to another credit card.

When you simply can't afford the increased minimum payment, consider moving the balance to a credit card with a lower, more affordable minimum payment. You might end up with a higher interest rate on the new credit card, so make sure you'll still be able to afford the payment.

Shuffle around some debt payment amounts.

If you're in the process of paying off your debts, you're probably sending higher credit card payments to one or more of your other credit cards or loans. In that case, you can lower payments on your other debts to get more money for the increased minimum payment.

Cut your expenses to the bare minimum.

In some cases, the credit card minimum payment increases by $500 or more. If this is true for you, you have to come up with an extra $500 each month to send to your creditor. It's time to take out your household budget and cut back on some expenses. Some areas you can quickly cut back: cable or satellite television, cell phone, landline phone, and eating out. Look at where you've been spending money each month to see where you should cut back.

Enroll in consumer credit counseling.

You may be able to reduce your minimum payment by enrolling in consumer credit counseling. Credit counselors work with your creditors to lower your minimum payments and often your interest rates as well. Be careful though, that your creditor doesn't use credit counseling as an opportunity to increase your interest rate. Unfortunately, if you're backed into a corner, you have have to accept a higher interest rate in exchange for a lower minimum payment.

Use a home equity loan to pay the balance.

Using your home equity loan to pay off debt is risky business. That's because you're using your home as security for your credit card debt. If you fall behind on your credit card payments, your credit gets tarnished. On the other hand, defaulting on a home equity loan puts you at risk of foreclosure and hurts your credit. Nevertheless, a home equity loan is an option you should carefully consider and take at your own risk.

Cash for Trading in Your Car

The federal government might give you cash to trade in your existing car or truck for a newer, more fuel-efficient vehicle. The Consumer Assistance to Recycle and Save Act (part of H.R. 2346 which has been passed by Congress and is headed to the Whitehouse for the President's signature). This is not a tax credit or a tax deduction, but it is money from the government.

Under this program, the National Highway Traffic Safety Administration will issue vouchers to be used to offset the purchase of a new car. The vouchers are worth up to $3,500 if the new car has a fuel-efficiency rating at least 4 miles per gallon higher than the old car traded in. The voucher jumps to $4,500 if the new car is at least 10 miles per gallon more efficient than the old car. There's different fuel-efficiency guidelines for trucks. (See below.) Purchases need to be made between July 1, 2009, and November 1, 2009, to qualify for the vouchers.

The tax impact? Here's the part I like best. The payment vouchers will not be considered taxable income for the car buyer.

In addition, car buyers are eligible to deduct the full cost of sales taxes paid on the purchase of a new car. This vehicle sales tax deduction is available for purchases made after February 16, 2009, and before January 1, 2010. Also, there's still some tax credits available for hybrid and other fuel-efficient cars.

Making the Most of Your Savings

Where is the best place to stash your cash? Under your mattress? In a cookie jar? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to throw up your hands and take the path of least resistance, but that can end up costing you money in lost interest.

It also doesn't help that lower interest rates are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.

There are five common places that you can use to manage your short-term savings:

  • Checking Accounts
  • Savings Accounts
  • Money Markets
  • Certificates of Deposit
  • Savings Bonds

Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your savings.

By Jeremy Vohwinkle, Guide to Financial Planning

How Long to Pay Off Balance With Minimum Payments

If you only make the minimum payment on your credit card, it could take years to pay off the balance. Not even that, you could end up spending hundreds, possibly even thousands, in interest by the time the balance is repaid.

How Minimum Payments are Calculated

Typically, minimum payments are calculated as a percentage (something like 1-3%) of your credit card balance. Late fees and over-the-limit fees can increase your minimum payment beyond the base percentage of your balance. Your credit card agreement will describe how your minimum payment is calculated.

Even though it seems like minimum payments are easier to make, they actually cost more in the long run.

Minimum Payment, Maximum Cost

Consider having a balance of $5,000, at 14% APR, and minimum payment as 2% of your credit card balance. Making minimum payments only, it would take you 22 years and $5,887 in interest payments to pay off this debt.

Increasing your payments to $125 a month would allow you to pay off the same debt in less than 6 years and spend only $1,775 in interest.

Not only does increasing your payments allow you to pay off the balance sooner, you also save money in interest.

Calculate Your Minimum Payment Timeline

To see the pay off time and cost of making minimum only credit card payments on your balances, you can use this minimum payment calculator from You might also use the pay off calculator to calculate your pay off time and cost when you make higher monthly payments.

Dollar Cost Averaging - Still a Good Idea?

When you dollar cost average (DCA), you invest a certain sum of money in a specific investment (or investments) on a pre-set schedule. For example, you might arrange to put $100 into mutual fund X on the first day of every month. The primary advantage of dollar cost averaging is that you will buy more shares when the price of the investment is low and fewer shares when it is comparably higher. You automatically use DCA when you sign up for your 401(k) plan.

So, when wouldn't DCA be a good idea?

Turns out, about two-thirds of the time. Since the stock market generally goes up (notwithstanding the nearly two years of current market pain), by waiting to invest a lump sum of money, you miss out on more of the long-term price appreciation. Still, if and when you have a lump sum to invest, you don't know if we're about to enter a period of time when you would be better off investing all at once (two-thirds of such situations) or doing so over several months or longer (one-third of similar occasions). Like everything else, using dollar cost averaging is a trade-off between risk and reward. What would you do? What do you actually do? What do you think about dollar cost averaging?

By Michael Rubin, Guide to Retirement Planning

Insurance Report Card

Now that the school year has ended are you ready for those report cards? Not just students are graded, so are insurance companies.

They are called ratings. These ratings are administered by independent companies. They are sort of like a report card on various aspects of a company's financial strength.

Best's Insurance Reports is an example of a popular independent insurance rating company. Similar to a report card, the ratings range from A+ to a C.

Now that you know..have you checked your insurance company's grade yet? Need to know how? It's easy-just call your insurance agent or company and ask.

Finding More Money to Help You Pay Off Debt

When you're just trying to keep up with your minimum credit card payments each month it can be hard to think that you have extra money sitting around. Although you may not realize it, you're probably sitting on at least an additional $100 per month worth of money that could be used to get that debt paid off faster.

It may be hiding in the more traditional places such as investments or an old cash value life insurance policy, but even more likely is the money that is slowly being drained from your bank account every month. The silent money pit usually comes in the form of small monthly payments. A few dollars a month for a magazine subscription, a gym membership that is rarely used, or even that premium cable channel can really begin to add up. Find five ways to save $10 each month, and you have another $50 a month, or $600 a year to accelerate those credit card payments. This can result in a significant savings on interest, and even cut months or years off the repayment period. Learn more about how you can find extra money to help pay off your credit card debt.