MMI Gives Guidelines for Minimum Payments on Credit Card Accounts to Ensure Faster Pay Off; Card Issuers Given Guidelines To End Negative Amortization

HOUSTON--(BUSINESS WIRE)--May 9, 2005--Consumers that have become accustomed to making minimal payments each month on large credit card balances may be in for a shock. New credit card lending guidelines will raise the minimum amount each month consumers are obligated to make.

Under the old rules, a large credit card balance could take decades to pay off and interest payments can end up two or three times as much as the original balance under existing credit lending rules. For some, the minimum payment, which has been as low as two percent of the balance for some customers, does not cover all the interest charges and any applicable fees so the consumers' balances actually increase after the payments rather than decrease.

“It will no longer be possible to purchase things on credit without some plan in place to pay off the balance in a much shorter amount of time than many consumers currently do.”

The guidelines require that credit card lenders regulated by the Office of the Comptroller of Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of Thrift Supervision stipulate a minimum payment that will amortize a consumer's current balance over a reasonable period of time. In order to meet the guideline, minimum payments will increase.

"The new credit card lending guidelines that are becoming effective in 2005 will drastically change the way Americans have used unsecured credit," said Steve Bucci, president of Money Management International Financial Education Foundation. "It will no longer be possible to purchase things on credit without some plan in place to pay off the balance in a much shorter amount of time than many consumers currently do."

For the many consumers who are overextended and have trouble making the current minimum payments on their credit card accounts, an increase in the minimum could cause immediate financial problems. "Consumers in such a predicament can seek help from legitimate credit counseling organizations whose payment plans may be much better than what they may have to pay under the new rules."

A new bankruptcy law that takes effect in October of this year could spell additional trouble for consumers with large credit card debt who may believe bankruptcy is their best solution. Under the new law, those that make more than the median income for their state may not qualify for total debt relief and will likely have to pay back most of the money to their creditors.

"In the long run the minimum payment increase will benefit consumers," continued Bucci. "However, in the short term credit card holders will have to adjust to the new rules by planning in advance how they will pay their credit purchases."

About Money Management International

The Money Management International Financial Education Foundation operates to educate the general public on sound personal financial skills and money management principles by developing, delivering, and supporting programs that teach those skills and principles. Funded as an extension to the education and counseling Money Management International (MMI) provides nationwide, the MMI Financial Education Foundation exists to educate the public and spread financial literacy. For more information about MMI Financial Education Foundation visit www.mmifoundation.org or to learn more about MMI visit www.moneymanagement.org.