Advertisem*nt
Credit Cards
By Keph Senett on February 18, 2022
Estimated reading time: 5 minutes
Sponsored By
MBNA
By Keph Senett on February 18, 2022
Estimated reading time: 5 minutes
If you’ve stuck with the same credit card for years, it might be time to find one with more attractive features—starting with a lower interest rate.
Advertisem*nt
Photo by picjumbo.com from Pexels
Interest payments can be a fact of life if you carry a credit card balance, but that doesn’t mean you have to pay the typical rate of 19.99% or more. Credit cards are like any other consumer product: It pays to shop around. When you choose a lower-interest credit card, like the MBNA True Line Mastercard, you could save hundreds of dollars a year. Read on to learn just how much you could save by switching from a higher-interest card.
Advertisem*nt
Advertisem*nt
How much interest are you paying?
Open your wallet and select the two or three credit cards you use the most. What interest rate does each one charge? (If you’re not sure, look online or at the documents you received with the card.) If yours are typical Canadian credit cards, the interest rates are likely around 20%. That means that for every $1,000 in debt you carry, you’ll pay around $200 in interest annually.
All about credit card interest in Canada
The first step to minimizing your interest payments is understanding exactly how they’re calculated. Your credit card’s interest rate is expressed as an APR, or an annual percentage rate, but interest is charged actually on a monthly basis. This makes sense because the amount of debt you owe will fluctuate as you make payments and purchases.
You can determine how much interest you’ll pay on your debt with some basic math. Your APR is your annual charge. To find your daily interest rate, divide the annual rate by the days in a year:
APR / 365 (days in a year) = daily interest rate
If your APR is 19.99%, your daily rate is 0.055% (19.99/365). Multiply your outstanding debt by this number to see how much interest you’re charged daily. If you owe $1,000, for example, you’d be charged $0.55 per day. Your monthly payment is simply your daily payment multiplied by the days in the month. In this example, you’d accumulate $16.50 ($0.55 x 30) in interest, for an annual amount of $198 ($16.50 x 12 months).
The amount you owe on your card will get smaller with each payment of principle plus interest, which will also reduce the interest you pay. The opposite is also true. If you fail to make a payment for one billing cycle, you’ll accumulate interest on the principle plus interest—in this example, $1,016.50. This is called compound interest, and it is the reason why unpaid debt can grow quickly.
How a lower-interest card can help you erase debt
Lower-interest credit cards can be a real lifesaver for those who carry credit card debt. Not only will you accumulate less interest on purchases, but many cards also include helpful balance transfer promotions that can set you up for success.
Take the MBNA True Line Mastercard*, a no-fee card that has a 12.99% interest rate on purchases and balance transfers (24.99% on cash advances). That means you’ll pay 7% less than you would with a card that charges the more typical 19.99% rate. Over a year, that’s nearly $70 per $1,000 in debt that you won’t have to pay. But that’s not the only way this card can help.
Advertisem*nt
When you transfer debt from another credit card to your True Line card within 90 days of opening an account, that debt will accumulate zero interest for a year. (This offer is not available for residents of Quebec.) You’ll pay a transaction fee equal to 3.00% of the amount of each balance transfer (minimum $7.50).
This welcome offer halts the compound interest effect and gives you 12 billing cycles to pay down your debt load without interest being applied, but you will have to pay a 3% balance transfer fee. After the year is up, any remaining debt will accumulate interest at 17.99%.
Debt reduction is the headline perk for the MBNA True Line Mastercard, but it holds a lot of value for those without debt, too. The MBNA Payment Plan makes it a snap to pay for large purchases while managing your budget. And if you need a quick cash injection, you could also use available credit on your credit card to transfer funds right to your chequing account.
The bottom line
Getting out of credit card debt isn’t rocket science—it’s math. When you move your debt from a card charging 19.99% to the MBNA True Line Mastercard, you’re giving yourself a full year without interest to reduce your credit card balance, and a much lower interest rate going forward.
MBNA True Line Mastercard
The MBNA True Line Mastercard checks two key boxes for cost-conscious cardholders: it has no annual fee, and its 12.99% interest rate is much lower than that of a typical credit card.
featured
MBNA True Line Mastercard
Annual fee: $0
Low interest rate: 12.99%
Balance transfer offer: earn a 0% promotional annual interest rate (“AIR”) for 12 months on balance transfers completed within 90 days of account opening, with a 3% transfer fee. This offer is not available for residents of Quebec.
Card details
Interest rates | 24.99% on cash advances,17.99% on balance transfers |
Income required | None specified |
Credit score | 660 or higher |
Read more aboutcredit cards:
- Make your purchases count with credit card rewards
- Finances stretched to the limit?
- How to lower your credit card interest rate
- Are you getting the most out of your credit card rewards?
This article is sponsored.
This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers.
What does the * mean?
Affiliate (monetized) links can sometimes result in a payment to MoneySense (owned by Ratehub Inc.), which helps our website stay free to our users. If a link has an asterisk (*) or is labelled as “Featured,” it is an affiliate link. If a link is labelled as “Sponsored,” it is a paid placement, which may or may not have an affiliate link. Our editorial content will never be influenced by these links. We are committed to looking at all available products in the market. Where a product ranks in our article, and whether or not it’s included in the first place, is never driven by compensation. For more details, read our MoneySense Monetization policy.
About Keph Senett
Keph Senett writes about personal finance through a community-building lens. She seeks to make clear and actionable knowledge available to everyone.
Comments
Advertisem*nt
Related Articles
Mortgages
Mortgage renewal calculator
Is your mortgage coming up for renewal soon? Use this tool to figure out if switching lenders could save...
Mortgage renewal calculator
Columns
Making sense of the Bank of Canada interest rate decision on July 24, 2024
Created By
Ratehub
Making sense of the Bank of Canada interest rate decision on July 24, 2024
Credit Cards
How cash back credit cards work
From making the most of tiered rates and shopping categories to redeeming your money, we break down how cash...
How cash back credit cards work
Retired Money
Why these authors want you to spend your money and die with $0 saved
According to the book Die with Zero, we should all run out of money just as we run out...
Why these authors want you to spend your money and die with $0 saved
News
What is the Bank of Canada’s interest rate?
Bank of Canada cuts its key interest rate by quarter percentage point to 4.5%.
What is the Bank of Canada’s interest rate?
Home Insurance
Does home insurance cover wildfire damage?
Here’s what’s covered if your home or rental apartment has been damaged in a wildfire and how to file...
Does home insurance cover wildfire damage?
Mortgages
Mortgage payment calculator
Use a mortgage payment calculator to understand what a mortgage will cost you in real terms.
Mortgage payment calculator
Spend
CIBC Costco Mastercard review: Is it really the best credit card to use at Costco?
Customers can use any Mastercard at Costco check-outs. We break down if Costco’s store-branded card is really the best...
CIBC Costco Mastercard review: Is it really the best credit card to use at Costco?
Investing
MoneySense at the MoneyShow: The Top ETFs in Canada for 2024 and the Market Trends to Follow
Here’s how to get your free ticket to attend the MoneyShow Toronto.
MoneySense at the MoneyShow: The Top ETFs in Canada for 2024 and the Market Trends to Follow
Life Insurance
Using whole life insurance for tax-free income in retirement
Borrowing against a policy’s cash value can provide tax-free income. But there are still costs involved and other factors...
Using whole life insurance for tax-free income in retirement