Saving Money and Managing Debt

# Finding the right credit card deal: Sundaram's story Add to ...

Sundaram already has a credit card with no yearly fee. But when he opened his mail the other day, he saw a great offer for a lower rate card - for a fee. He wonders if it could help him save money, because he doesn't always pay off his monthly balance. Here are his two choices:

• a regular card with an interest rate of 19% and no annual fee
• a lower rate card with an interest rate of 12% and an annual fee of \$120

Sundaram compares the total costs of the cards, including fees and interest, for two different outstanding balances for a year: \$1,000.00 and \$2,000.00. This example assumes the interest is calculated monthly.

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 Regular-rate card (19% interest) Balance owing Interest Annual fee Annual cost(not including payment of balance) \$1,000.00 \$207.45 \$0 \$207.45 \$2,000.00 \$414.90 \$0 \$414.90 Lower rate card (12% interest) Balance owing Interest Annual fee Annual cost(not including payment of balance) \$1,000.00 \$126.83 \$120.00 \$246.83 \$2,000.00 \$253.65 \$120.00 \$373.65

What Sundaram learns: If he carries a balance of \$1000.00, the regular rate card is less costly because it has no annual fee. If he borrows more each year, the interest rate will factor in more. With a balance of \$2,000 over a year, Sundaram would save \$20 using the lower rate card. He should still aim to pay off his debt as fast as possible to reduce the interest due every month.

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