While interest rates are low, and the effect of newly introduced credit card rules is likely to raise fees and rates, homeowners carrying balances on credit cards may wish to use a home equity line of credit to consolidate their debt under one lower-interest credit facility.
Dianne Nice, business correspondent for the Globe and Mail, reports that, “(t)ough new rules that take a bite out of the Canadian credit card industry’s profits are sparking concern that consumers could see a rise in rates similar to those hitting American card users.”
With the passage of comprehensive financial reform that stripping credit card companies of largely hidden, but lucrative fees, “U.S. credit card companies have pushed their interest rates to their highest level in nine years,” according to research firm Synovate , as reported by the Globe. Synovate research shows that, “(t)he spread between the prime rate and the average credit card interest rates is now the largest it has been in 22 years.”
New Canadian regulations come into effect this week. The intent of the new regulations – like that of the new U.S. Credit Card Accountability Responsibility and Disclosure Act – is to make the terms and conditions of credit cards, together with interest rates, readily transparent to consumers.
Credit card companies make the bulk of their profits through the fees and interest charged on credit card holders who maintain a month-to-month balance on their cards. The new Canadian are designed to trim fees and reduced interest paid, in part by increasing transparency of fee terms and extending the interest-free minimum grace period on credit cards.
Credit card companies will have to look to other areas to maintain their revenue streams, including perhaps raising interest rates. For homeowners now carrying month-to-month balances on store and credit cards debt consolidation may make increasing financial sense. With the threat of higher rates and fees looming, it may be prudent to pay off card balances and consolidate debt under a lower interest home equity line of credit, before credit card interest and balances balloon.
