Wednesday, April 28, 2010

New Credit Card Rules & The Time Value Of Money

Every now and then, governments implement useful new regulations.  It was the case when Tobacco companies were required to put health risk warnings on all their products and advertisements and here is another one which has been long overdue IMHO. The Federal Reserve's new rules for credit card companies mean greater protections for consumers.  On their Website, the Federal Reserve lists some key changes you should expect from your credit card company beginning on February 22, 2010.

There are various new rules which all make sense in terms of limiting the shark-like behavior of some of the more notorious credit card companies.  Perhaps the most relevant changes that could affect you positively are the new rules for late payments and minimum payments.

Have you looked at your credit card statement recently? The first page should now look something like this:

CCs-3

The prominent displays of late payment and minimum payment warnings should provide some deterrent for all of us credit hungry musicians. 

As an exercise, hopefully creating some form of an “aha” effect, use the 2 examples above to truly understand the difference of paying something today versus delaying payment. This is a perfect illustration of the time value of money, a concept we will be spending a lot of time with in the future. Meanwhile, take out your calculators and run through some calculations. 

You can also see a great cartoon on the subject at our previous post Funny Money.

As we concluded then, it’s always best to pay off your credit card balance in full!

For questions, comments and suggestions, please feel free to use the commentary section or email: clemens.kownatzki@fxistrategies.com

Please help us spread the word and promote financial literacy!

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