Yesterday, I received a notice in the mail advising that TD was making changes to their credit card accounts. I assumed they were lowering interest rates since the Bank of Canada just reduced prime and most people in the financial industry think the Bank will be lowering them again in the near future.
The bank is raising interest charges on overdue accounts and dramatically increasing the period you have to live with the higher rates. I assume (always a dangerous thing to do) that the other banks and credit card companies will soon follow suit.
Let me briefly describe the change TD has announced and then explain the significance.
The old policy for people that missed their minimum payment by 30 days was to increase the customer’s interest rate by 5% and keep it there until the customer made 2 minimum payments on time in a row.
The new policy is to charge 24.99% interest on purchases and 27.99% interest on cash advances until the customer has made 12 consecutive minimum payments on the account.
The bank’s notice provides an example that uses a $2,500 balance and explains that the new charges will cost the customer an extra $8.47 per month. That doesn’t sound too bad, unless you owe more than $2,500 and you end up paying that extra amount for a very long time. Using the bank’s example, the extra interest over 12 months equals $101. If any payments are late during that year the 12 month clock starts ticking again. If you owe $25,000 on your credit cards then is will cost you and extra $1,000 per year. That’s money that previously would have reduced your debt (and therefore interest charges).
The truly frustrating part of all of this is the fact that the banks can simply alter the terms of your credit card agreement whenever they want. In this case, they are dramatically increasing the costs for people in default – the people in the most need of some extra consideration and help.
Keep an eye on your mail. As I said, I expect the other banks and credit card companies to quickly follow suit.
One more reason to develop a plan to deal with your debt.