Sunday, 28 April 2013

Credit Cards - Understanding your rates

I had a comment after my last posting "Credit Cards - Are they for everyone" from Marc at that not all credit cards have high interest rates.  He has a point.  Some cards have fairly low rates.  The "high interest rate" disadvantage in my posting was more about credit cards having high interest rates especially compared to other forms of debt because credit cards are really just a type of loan.

For those of you who are thinking of getting your first credit card, just received a credit card or are experienced credit card users, I have a question for you -- Do you understand your rates?

I took a couple of credit cards at random to look at the rates.

Card #1 - Offered a 0% rate for the first 12 months but then after that increased to 17.99%.  If you didn't make your minimum payment twice during any 12 month period, they'll add on another 5% to give you 22.99%!! until you maintain at least your minimum payment for 12 months.  Card #2 - Offered a 9.99% rate.  If you didn't make your minimum payment twice during any 12 month period, they'll add on another 5% to give you 14.99%!!

So depending on the card, much different rates and some additional penalties is you don't pay on time.

There is another concept people sometimes are not clear on - Interest and relation to Grace period.   Most credit card companies will give you about 21 days grace to pay the bill so if you statement date is November 5, the Payment Due date may be the 25th of every month or November 26 for the November statement.  Here's the part where there may be some confusion, if you make your payment in full by the due date, then all interest charges for new purchases are waived.  If you only pay the minimum, you are charged interest from the date of the purchase and not the statement payment date.

These are only a few details to understand.  For a lot more detail, try the Credit card section on the Financial Consumer Agency of Canada website -

If you want to compare cards, or are good.  I took a look at also.  Worth a look.  Entered criteria is applied to reward formulas and interest rates and gives an evaluation of cards including their view of pros and cons.

James Whelan,

Sunday, 14 April 2013

Credit cards - Are they for everyone?

A friend of mine confessed to me recently that he used to have a credit card but had to get rid of it.   He saw it as "free money" and had every intention to pay it off at the end of each month but ended up only paying part of his balance and very quickly ended up owing a large amount.  He made the decision to get rid of his card, worked at getting rid of his debt (this took a long time) and now only buys things if he has the money to pay for it.

So credit cards may not be for everyone.  Here are some thoughts on the advantages and disadvantages of having them.

  • Advantages: Convenience, Access to Funds, Safe and Reliable / Fraud Protection, Insurance for Purchase, Rewards

  • Disadvantages: Convenience, High Interest Rates, Potential Fraud, Higher Prices for all Consumers, Decreased Self-Regulation, Hidden fees

The disadvantage that caught my friend was "decreased self-regulation" or when you don't regulate your spending as much as you should, do more impulse buying, less comparison shopping etc.

Here are a couple of links you may find useful for teaching students, children (and adults) about credit cards:

  • Get it on Credit This video is very entertaining while at the same time you learn about credit cards, payment terms, compound interest and credit scores.
  • Funny Money - Cost of Borrowing  - This is a great lesson created by the Investor Education Fund, a Canadian non-profit organization, for learning about reading a credit card statement and the cost of using credit cards.  See the video they also created in the link above. 

James Whelan,