I want a low minimum payment on my credit card

On Wednesday September 30th, the Canadian government unveiled new regulations concerning the information credit card companies must provide on the statements for consumers. This includes a summary box that will tell consumers how long it will take to fully repay their balance if they only make the minimum payments on their credit cards.

As someone that really enjoys numbers I may be amused at reading this number on my credit card statement; though the intent of providing this information to consumers is misguided. I am reminded of an article I read in the Toronto Star, "Credit card debt fuelling bankruptcies, group says", when a Senate committee began debating this issue.

The consumer rights advocacy group, Option Consommateurs, argued before the Senate that the cost of credit card debt has been increasing because credit card issuers have lowered the minimum payment that they require. To illustrate this they compare how long it would take off to pay off $1000 only making the minimum payments if you have minimum payments of 2% or 5%. It would take 4 times as long to pay off with the lower payments and you would end up paying 5 times as much interest. The unfortunate thing is that Option Consummateurs effectively argued that this was evidence that lower minimum payments hurt consumers.

Let me just mention a couple things that everyone with credit cards should know. Credit cards have very high interest rates; because they have high interest rates you should try to pay off your credit card debt as quickly as possible. Making minimum payments will keep the credit card companies happy (rich) but is not the best way to pay off your debt.

I typically tend to pay off my credit cards each month which avoids any interest charges but I do understand that there are times when it would be best not to pay off my credit cards immediately. I think of seasonal workers that have to live without a paycheque for a few months with the knowledge that they have a good job come the next season (My father was a school teacher and he would not receive a paycheque for a two month period every year). If the start to feel that money is tight they would want to make as little payment against their debt so that they have money for necessities until they start receiving their paycheques again. So if they were owing $1000 and decided not to pay it for 2 months it would cost them an extra $0.91 in interest charges if they were making minimum payments of 5% instead of 2%. As a consumer, I feel that if money is tight I would be happy to have $60 extra available that I could spend on food for my family than the $0.91 interest it costs me to keep that debt.

It is in the interests of consumers to have as low a minimum payment as possible. It does cost them more to make lower payments; but having the choice is better because they can simply make the higher payments if they believe the low minimum payments are bad.

I hope that providing information about the length of time to pay off the debt by making minimum payments; does not trick people into prioritising cards with low minimum payments instead of cards with high interest rates.