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MONDAY, AUGUST 22, 2005
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EDITORIAL

Higher minimum payments good, but expect hardships

It will soon get harder to finance your life on the proverbial dollar down and dollar a week.

By the first of next year, banks are expected to implement government regulations requiring higher minimum monthly payments on credit-card bills. A spokesman for the Comptroller of the Currency told The Associated Press that "one percent of the outstanding balance" is a reasonable amount of principal to include in such payments. "What this does mean is the minimum payment will actually reduce their debt, which wasn't necessarily the case before," he said.

This makes sense. Someone who pays only the interest each month is treading water if he's not adding new charges to his card — or sinking if he is making additional purchases. Unless he's expecting to come into big money in the near future, this is an unacceptably costly way to live and a path to disaster.

Consumers who have the option of buying less or paying more each month are smart to do so. The new policy only nudges them in the right direction.

The big problem comes for those whose incomes are too low to meet their basic needs. For them, the new policy — combined with the new, stricter laws about filing for bankruptcy — increases financial strains and hastens financial ruin.

The American Bankers Association did a survey, finding that only 4 percent of consumers make minimum credit-card payments each month. Roger Knauff, director of the nonprofit Consumer Credit Counseling Service of Alabama, says such a low figure is "hard to believe."

The new policy is a smart step toward greater financial responsibility by consumers. But those who aren't equipped to live with it need to start planning now for harsh new realities. And during the transition, credit-card companies ought to cut them some slack on the high penalties these companies impose for late payments.

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