Tuesday, May 12, 2009

Chase is Brilliant

Hat tip: Special Ed, via Consumerist

JPMorganChase is currently carrying out one of the most brilliant bank strategies I've seen in a long time. On their customers' credit card bills this month, they decided to set the minimum payment at a good old $0.
Chase is being awfully nice to their customers in tough economic times. Many of their customers received statements this month with a minimum payment of $0, even though they have balances. How nice! Customers take a month off, Chase will just let finance charges accrue for them.
Now, what would you do if you got a bill that said you owed $0 this month? Odds are, you'd say "Great!" and throw it in the trash, not paying a cent. You'd be happy, and Chase would be even happier: You'd accrue finance charges on the money you still owe. If you owed $2,000 at 18%, you'd accrue about $30 in finance charges.

One of the reasons it's advisable to not just pay the minimums on credit cards in general is that banks calculate what they think is a good level to keep you paying as much interest for as long as possible without pushing it to a level where you'll stop paying them. Chase is taking that one step further with this, by putting in a one-time break to let everyone accrue more interest for them. When paying down debt, figure out what you can reasonably pay down based on what you have available, and pay that amount, which should be well above the minimum. (Personally I find it useful to pay down to a round number, such as a -00 or -50. Not only does it give me a clear picture of how much I owe without rounding and being off, but it makes me more aware of whatever finance charges I'm getting hit with each month when the bill says I owe $-18.36 or whatever, and I immediately understand that I was just charged $18.36 in finance charges. That added awareness gives me an extra push to pay down the debt faster.