According to an article by CTV.ca, new credit card measures will be coming to place on September 1, 2010. Back in May of 2009, Flaherty announced nine new proposed regulations designed to make the industry more transparent and fairer to consumers. The changes to the cost-of-borrowing regulations would have to be approved in Parliament to become law.
The time has come for implementation and one of the biggest changes is banks will be required to include information on your credit card statements about the true cost of borrowing. It is not clear yet exactly what needs to be shown but here are some examples of the type of information that needs to be on your statement as of September 1, 2010.If you have a $500 balance on your credit card, they will have to shown you the impact of only paying the minimum income. Based on a minimum payment of 3% at a 19.5% interest rate, the new statements will need to show that only paying the minimum income will meant that it will take 78 months to pay off that $500 and the total cost will be $847.63. Essentially that means that $500 purchase will create $347.63 of interest by only paying the minimum.In another scenario, if we assume the same $500 balance and the same 19.5% interest rate but now a $15 per month fixed payment instead of 3% on an declining balance, that balance will be paid off in only 49 months and the total cost would drop to $776.The point to these changes is simply to make people aware that only paying the minimum on credit cards is a very expensive way to buy things. Statistics show that about 30% of Canadians keep a balance on their credit cards. According to Equifax Canada as of September 2009, the total outstanding credit card debt in Canada hit an eye-popping $78 billion. If you are part of this group that keeps a balance on your credit cards, make sure you have a plan to pay off these cards by either consolidating to a lower interest card or line of credit or at least make payments greater than the minimum.If for example, you make fixed payments of $20 instead of the $15 per month, the total cost of that $500 balance is only $647 and the balance will be paid off in 33 months. A payment of $5 more would save $79 in interest and pay off the card 1 year, 4 months sooner.All of these calculations we done using online calculators. My two favorite calculators were from Financial Consumer Agency of Canada
and CreditCanada.ca.
Will putting this information on statements make a difference?
I guess only time will tell. Cynically, I'm not sure this will have a big impact. It you don't know that it is important to make more than minimum payments on credit cards, then chances are you have been living under a rock. That being said I guess I should not be so surprised. My friend Ray Turchansky, financial journalist said it reminded him of the days when cigarette companies were required to put pictures of rotting teeth and smoke impacted lungs on every package. We all knew smoking was bad for you but maybe we needed some visual reminders.
Jim Yih is a Fee Only Advisor, Best Selling Author, Financial Expert and a syndicated columnist. He is a sought after financial speaker on wealth, retirement and personal finance. For more information you can visit his any of his other websites www.jimyih.com and www.retirehappy.ca. Inquiries can be emailed to feedback@WealthWebGurus.comPosted via email from JIM Yih
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