Who thinks it's a good idea to go into debt to pay for a wedding?
Royal Bank of Canada seems to. In a brochure for a new credit card called RBC MyProject MasterCard, the bank includes a photo of a beaming bride. The card is "the perfect solution for your home renovation and landscaping projects and for big events, such as a wedding or anniversary celebration," RBC says.
The MyProject card is a novel borrowing alternative to conventional credit cards. But it's also a sign of how debt has become the great facilitator in our lives. Name a milestone or occasion and I'll show you a lender trying to help you do it up right with a credit card, credit line or loan.
Hey, that's what banks do. They lend money to people and make lots of money by charging interest. But given the fact that high personal debt levels are one of the top economic risks facing this country, it's time to start paying more attention to how banks get us to borrow and why we keep falling for it.
RBC MyProject MasterCard is certainly an example of bank ingenuity. Think of it as a credit card with the fixed payment discipline of a loan. You can spend up to $40,000 on it and pay nothing for the first six months. At the end of that period, your card debt converts into a loan that you repay over a period of five to 15 years. Currently, there's a variable-rate option on the loan at 7.99 per cent (prime plus 4.99 percentage points) and a fixed rate option at 8.99 per cent. Conventional credit cards charge in the range of 20 per cent these days.
Richard Goyder, vice-president of personal lending at RBC, said the MyProject card is designed for people undertaking projects who want to keep their spending organized and capped at a certain level. Instead of paying some costs with cheques, some with debit and some with plastic, you can keep a running tally with the card.
"What we're looking at are people who are going to be financing something like a wedding and trying to give them a more planned, and cheaper, way to doing that than putting it on plastic," Mr. Goyder said.
The MyProject card might actually make sense for a renovation. The smartest way to pay for a project like this is a home-equity line of credit, where you borrow with your home as security and benefit from rates as low as 3.5 to 4 per cent. Add a few percentage points onto that for an unsecured line of credit. But let's say you don't have a credit line. If used intelligently, the MyProject card is better than paying with a conventional credit card and then carrying a balance.
The wedding sales pitch is pushing it, though. Young adults getting married may still have student debts, they're likely making entry-level salaries and they're carrying massive lists of stuff they want after years of student austerity. Now, along comes a credit card seemingly designed to help people afford a nice wedding. "It's almost telling us to put your wedding on MasterCard," a reader of this column recently noted in an e-mail to which he attached the MyProject brochure.
Borrowing to pay for your own wedding is a bad idea. As I note in my new book, How Not to Move Back in With Your Parents: The Young Person's Complete Guide to Financial Empowerment, big wedding debts can hold young couples back from buying a home, starting to save for retirement and other important financial milestones. Whether it's parents or young adults paying, the cost of a wedding should come all or mostly from saving, economizing and not letting the wedding industry get its message about conspicuous consumption into your head.
Does Mr. Goyder think it's a good idea to charge a wedding to a MyProject card? "We think it is, because the audience that we're talking to are the ones who, if they weren't putting it on the MyProject card, would be financing in a less efficient way."
You often hear the banks use the phrase "borrowing solutions" when talking about credit cards, lines of credit and such. But these are solutions to the wrong problem. People need encouragement to live within their means, not new ways to borrow.
MyProject, your wedding
How the RBC MyProject MasterCard could be used to pay for a wedding or any other project: In this example, $20,000 is charged to the card and after a six-month period of zero payments, your debt converts into a loan. Here are two examples of how the loan could be repaid.
Variable rate loan option
Rate: 7.99% (The rate is set at prime plus 4.99 percentage points)
Payback period: 5 years (This is like an amortization on a mortgage; your shortest option is five years)
Payment: $405.43 per month
Fixed rate loan
Rate: 8.99% (This rate is guaranteed for five years)
Payback period: 15 years (This is the maximum payback period)
Payment: $202.73 per month
Notes:
-no cost for paying the card off early
-you can change payment amounts and frequency
-you can make lump sum payments
-no annual fee
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On Thursday, I'm asking people in my Facebook personal finance community what they think about going into debt to pay for a wedding. Check out the conversation at facebook.com/robcarrickfinance, and click on the "subscribe" button to receive regular updates on all kinds of money topics.
Rob Carrick