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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.

More Related to this Story

Regular-rate card (19% interest)
Balance owingInterestAnnual feeAnnual 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 owingInterestAnnual feeAnnual 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.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

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