I opened my american express bill this month and I saw something new (to me) on the first page. American Express provided a ‘Minimum Payment Warning’ along with a little grid, that displayed the following:
“If you make no additional charges and each month you pay only the minimum amount due, the balance shown on this statement (which was $6,662.90) will be paid off in about 25 years and you will pay an estimated total of $15,926.”
“If you make no additional charges and each month and you pay $238, the balance shown on this statement will be paid of in about 3 years, and you will pay an estimated total of $8,580.”
It then says you will save $7,346 if you make that payment of $238 vs the minimum payment.
Seeing this information got me wondering why American Express was providing such details. At first glance I thought they were crazy because all that interest is how they make their money. We pay our bill off every month, so they make nothing off us at all. As a matter of fact, with our American Express Blue Cash Reward Card, they pay us about $1400 every year to use their credit card, and we get the money right before Christmas, which is pretty fantastic. But anyway, I always figured the credit card companies made a killing off those that only paid the minimum payment each month. I then originally submitted this post thinking that maybe so many people were walking away from their credit card debt, that maybe it was better financially for the credit card companies to actually have people pay more each month and fore go the money made off the interest payments. In other words, American Express provided this information because a bird in the hand is better than whatever it is in the bush. However, a well informed reader (thank you Greg!) commented that the credit card companies were forced to disclose this information as part of the Credit Card Accountability, Responsibility and Disclosure Act
(Side note, this post was then modified to include the information Greg provided.)
So even though the payoff information was not provided altruistically by American Express, I am so glad that this data is readily available to credit card users. Everyone knows in their head that high-interest cards can destroy you financially. However, I think the real impact of only making minimum payments is much easier to understand when it is spelled out so clearly like American Express (and others) have been required to do.
Obviously I am late in recognizing this new feature on credit card bills. Just curious, has reading the bill payoff information on your credit card bill made a difference in how much you pay on your bill? Or do you always pay your bill off every month so it really doesn’t matter?
