Our Ever Changing Credit Card Bills

Posted on April 12, 2010
Filed Under Credit Cards

The new credit card bills have arrived and don’t they look spiffy!

Yes folks, at long last, thanks to the Credit CARD (Credit Card Accountability, Responsibility and Disclosure) Act of 2009, credit card companies have redesigned their monthly statements to actually give us some useful information. Now, the law requires that they list things in a clearer way so that we as consumers can make better and more informed choices about our money and our credit. Will wonders never cease?

Of all the changes though, my favorite (and the most shocking) is the Payment Information section. That’s where the bank now has to list more than just your balance and payment due data. They now have to list the ramifications of your payback choices. For instance, exactly how long it will take you to payback your balance if you just send in the minimum payment. Brother, it is eye-opening. I’m looking at my statement right now and if I just pick the minimum payment, it will take me 13 years to pay the whole thing back! Wow!

The length of time is of course closely related to how high your interest rate is and how much your balance is. My interest rate is in the lower double digits and my balance isn’t bad, hence the 13 years. But many people today are in a lot worse shape. Those with interest rates in the 20% – 30% range and with hefty balances are looking a payback times that could take a generation or more.

Of course this isn’t really anything new. This kind of payback time-frame was always in place for those that chose the minimum payment – it just wasn’t common knowledge. Now that it is though, I’ll bet there are a lot of gulps coming out of a lot of consumers when they open their credit card statements.
Let me clarify for a moment. To end up paying your debt back over such a long period of time you must choose the minimum payment due each and every month. That minimum payment will decrease every month as you pay off a little bit of balance so if you keep choosing the ever-reducing payment, you’ll end up paying only tiny portions of your balance every month.

The better way to approach paying off your credit cards is to keep to a fixed payment schedule every month. That means pay something at or above the minimum (as much as you can afford) and stick with that amount every month. Over time your balance will decrease faster and you’ll end up paying less interest overall. After all, who wants to pay interest on something perhaps 13 years after they bought it?

Another interesting change in your credit card bill is how banks and credit companies allocate your payments. It used to be that they applied the money you sent in any darn way they wanted to which usually meant in a way that benefited them and not you. For instance if you have one interest rate for normal purchases and a higher interest rate for cash advances, and you sent in more than the minimum payment, they would apply all of your money to the lowest interest rate balance. That meant you weren’t achieving the maximum bang for your hard-earned buck. It also meant it took you longer to pay everything off.

This little tidbit was usually buried in the fine print on the back of your statement along with some extra surprises about fees and billing periods. And there can be a lot of fine print on the back of a credit card bill unlike your credit card’s younger brothers, prepaid debit cards.
Now, if you pay more than the minimum, your lender is required to apply the extra amount to your highest credit card APR before your lower ones. That’s better than before but it’s still not the best it could be. In a perfect world, you would be able to tell your bank which balance to apply your money to. But alas, this is not a perfect world. At least this change was a small win for the consumer.

So the new credit card bills are in town and there’s a whole lot of shakin’ goin’ on. Hopefully, they’re helping you find a little bit of credit card relief too. Do yourself a favor and get to know what’s in your monthly bill because paying credit card bills the right way takes a little study. Find out what kind of restrictions you face and discover what your real options are. You’ll find more restrictions than freedoms but at least knowing what the boundaries are will help you navigate your way to a safer financial destination.

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