As I keep saying: What happens in the U.S. will come to Canada. This time, it’s a massive increase in credit card penalty interest rates. It was announced last week by the CIBC and TD that, if you get behind on your credit card, they’ll jump the rate – a lot!
It’ll increase by up to 15%. That’ll put a low rate credit card of 12% or so to upwards of 27%. And it used to be for six months – now you’ll be in the penalty box for a year at that insane rate. If you play with fire, you’re going to get burned. Credit cards are a great convenience but they’re not your friend. If you carry a balance, low rate 12% cards are a bad rate, 20% normal cards even worse – but 27% is insane. And who pays them? The people who can least afford the penalty rates, because they have a hard time making the minimum payments. Don’t charge today what you can’t pay off by the end of the month. Whatever you’ve bought on your credit card isn’t worth paying for years at close to 30%.
The second bank change, this one on lines of credits and credit cards, also has to do with your credit rating – your credit score. You’ll see a ton of rates that are now “prime plus.” When rates go up, your rates will go up right with it the following month. On the TD website, their Emerald credit card is now prime plus 1.5% to prime plus 12.75%. If you apply, you don’t know what your rate will be when you get the card in the mail. It might be low or insane. That totally depends on your credit rating. Reason number 238 to go to equifax.ca and purchase your credit score. If you don’t understand it, email it to me and I’ll explain it, or go to yourmoneybook.com for the US Fighting Back! book. It has a huge section on credit scores…something Americans all know and live and die with. Us Canadians better get to learn it, too – it’s coming to Canada right now!
A month ago we talked about the tools and insights of how to get your credit card interest rates lowered and here comes the NDP.
Their web site now has the same information we last month. That’s great – the more people have these tools the better. But the NDP takes it another step beyond what I believe is logical.
The web site actually states: Help Jack Layton take on the Harper government to lower credit card rates. Yup, in politics anything is possible – even blaming the government for credit card rates. Bet you didn’t know it was Prime Minister Harpers’ fault. Maybe the government is to blame for the Canucks missing the playoffs, too… Give me a break.
Peggy Nash is the NDP Industry critic, and I actually heard her being interviewed. Yes, the NDP believes that banks should be forced to lower credit card rates across the board. How about we force Canadians NOT to carry credit card balances? How about we outlaw credit cards? Wouldn’t that be a lot more logical?
She was asked whether it isn’t reasonable to conclude that forced lower rates wouldn’t really be part of a free-market economy and wouldn’t a lower rate get people to just increase their debts? Nope – she didn’t see that at all.
Perhaps it’s time we pass a law for car dealers to lower prices and everyone should pay the same amount. Come on!
Reflecting about this backwards thinking got me wondering if there is ever a time where I might confuse someone. The government isn’t responsible for our financial situation. They don’t use our credit cards, didn’t sign our mortgages and didn’t force us to get a line of credit or car payments that are way longer than the life of the car.
Getting into debt was our choice. It’s always a choice – and getting out is a lot harder. But the party ends eventually and there is always a price to pay for all of our financial actions. But perhaps it is less and less politically correct to talk about personal accountability in so many areas of our life.