This will be a series of articles that will further discuss and recap what took place on The Finance Hour. The Finance Hour is a radio talk show that airs every Saturday Morning at 9:00 am on CP24 Radio 1050. With two hosts, Michael Garrity of Community Lend and James Plewak. The Finance Hour has started a 12 week series which is aimed toward key topics of interest for most Canadian households. You can follow the show at thefinancehour.com and follow them on Twitter @thefinancehour.
On last week’s edition of The Finance Hour – Ontario’s only Radio Show that is designed to focus on helping households better understand financial services and products, we have “Credit Cards, The Good, The Bad and the Downright Ugly”
Credit cards are probably the biggest revolutionary technology in the payments space. In Canada alone, $200 billion in transactions were placed on credit cards (this is based on last year’s). While on the other side of the coin, credit cards are also one of Canada’s largest contributors to personal bankruptcies
In Canada today there are 68 million credit cards in circulation, which is about an average of 2.6 credit cards per Canadian.
The implications about this technology are that credit cards are one of Canada’s biggest contributors to personal bankruptcy. With 1 in 10 Canadians carrying more than 10 credit cards, and another 25% of Canadians carrying a balance at any given point in the month; it is no surprise bankruptcy is the end result.
There are 2 guests on the show; the first guest is Scott Wilson, CEO and Founder of BlueCap Inc. Scott has spent over 15 years working in the credit industry for companies such as Visa Canada and most recently Capital One. The second guest on the show is Derek Szeto, Founder of RedFlagDeals.com and General Manager of Deals, Coupons, Shopping at Yellow Pages Group. Derek is an expert in helping consumers stay informed, and how they can save money in their life.
Which is better, Visa or MasterCard?
This is a question that has plagued countless Canadians. The only answer that can give is that there is not much difference these days. Wherever you go you will find Visa and MasterCard accepted; in fact MasterCard may have more cards outside of Canada when compared to Visa. For Tim Horton lovers, MasterCard is currently the only credit card accepted, which for some can be incredibly annoying since they may not have their own MasterCard.
Banks sign up for Visa and MasterCard – in the end it is just a brand; all they do is route transactions from the merchant to the corresponding banks. Visa and MasterCard has set down rules for the card and what features they will have to ensure that their brand has meaning.
Banks on the other hand set everything else, which includes interest rates, points, value proposition, etc.
With concerns to Amex, they have the higher income earners, people who are willing to spend more money in high end locations – this gives a higher discount for merchants.
Affinity cards are simply a bank issued Visa or MasterCard with some creative marketing involved. This is a way to get you to use your bank card, it can be said that it is a loyalty card.
What is the Good with Credit Cards?
Credit cards are a necessity to live in todays’ society; all online transactions HAVE to go through a credit card, and most merchants will push you to use the credit card for the convenience of record keeping. It is also a much cheaper form of cash, and less risky than carrying around cash for sure.
What are some of the Bad side of the Credit Card Industry?
What consumers tend to forget to do is looking at the interest rates. Consumers tend to forgo interest rates and focus on the rewards; therefore companies market on the rewards. It is what sells. Interest do not hold as much appeal, they should, but they do not.
The industry’s motive is to make money; they want you to pay only the minimum balance every month and stay in debt for a longer period of time.
Consumers forget to read the find print of the contracts:
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- Intro rates end after 1 – 3 months – what is the NEW interest rate?
- Always find out the new interest rate, it tends to be hiding in the find print
- Hidden fees are also another great example
- What are cash advance fees, what happens when you go over your limit, etc.
- Intro rates end after 1 – 3 months – what is the NEW interest rate?
With concerns to minimum payments, it has been legislated that you have to see on your statement how many years it will take to pay down the balance if you only make minimum payments.
What are some of the Ugly sides of the credit card industry?
One of the biggest issues is when people get into a lot of debt, and are in a cycle of covering minimum payments with no end. When this happens to you, it means you have to start making huge changes in your life.
A few suggestions given were to stop using your credit card, get help at www.creditcanada.com and look at consolidating your debt.
What is www.RedFlagDeals.com?
RedFlagDeals.com is a website that many Canadians use, including myself. It is a website that is devoted to supplying consumers with information bout the best deals, supplying coupons and letting people know where you can find the best stuff for the right price.
A great tool on the site is a credit card selector, which helps you find the best credit card for you based on the benefits it provides. Based on the following questions, a credit card will do all of the research and pick the best option for you:
- Are you likely to carry a balance?
- What are you typically using it for? Purchases? Cash advances?
- What are some of the rewards you’re looking for?
- Are you willing to pay an annual fee?
RedFlagDeals.com is a great community where users can discuss about different credit cards and their experiences. This includes the service provided, how hard was it to redeem rewards, etc.
The credit card Szeto found to be the best in terms of Cash back and Travel rewards is the Smart Cash from MBNA, which send an actual cheque each month. The other credit card he found to be great is Capital One’s Aspire Credit Card.
For those who wish to hear the show for themselves, you can find a recording located here.
Hopefully you have a better understanding of the credit card industry, and by that I mean the Good, the Bad and the Ugly.
image source: Andres Rueda
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