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Friday, March 2, 2007.
Toronto. Just received my latest CIBC Aerogold VISA statement and
an enclosure regarding some changes CIBC is making. Usually I throw out
everything but the statement, but this enclosure caught my attention for two
reasons.
Lower Minimum Payments
CIBC will start
calculating minimum payments at a rate of 2.1% starting April 2007. Standard
minimum payment calculation rate has been at 3% so far for most of these credit
cards. According to CIBC, 'This new payment calculation allows smaller minimum
payments when needed, giving you more budgeting flexibility.'
Payment Due Dates
If you pay your balance in full,
you will have 21 days to do so from the statement date. If you carry a balance,
you payment due date will be stretched to 26 days the next month.
If you are
thinking these banks must be doing all these to serve consumer interests, it's
time to think again. Canada's savings rate is one of the lowest among
industrialized nations. To make things worse, our average savings rate
went below zero in 2006 for the first time. We are living in the culture of Buy
Now Pay later and definitely your banks and credit card companies don't want to
pay you in full and keep a zero balance. They will give you incentives and deals
so you end up never paying off your balance and that's how they make their money
and they want you to be that way. Once my friend received a T-shirt and a mug for
being a loyal American Express customer. He jacked up his credit card up to his
limit and paying only the minimums. Good news for the card company but bad news
for him. If you have $1000 balance with an annual interest rate of 20% and you
only pay the minimum (3%), it will take you 10 years and 9 months to pay off your
debt and you will pay $990 in interest. This example seems to be unreal but the reality is the more you keep your balance hanging, the better off
your credit card companies are. The secret lies in the minimum payment amount.
Your minimum payments will be less and less every month because it will be
adjusted to the 3% of new balance for each month and if you continue paying your
minimums, you will be doomed.
I just happen to come across CIBC policies. It does not mean that other
institutions have better policies that make you pay your balance faster. I am
sure others will follow the same suit, if they haven't followed yet. The onus
lies on consumers to not to fall for their incentives and carry a balance.
Always live within your means and educate yourself to have a better financial
future. |
