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If you find yourself carrying a balance on your credit card—it happens. Here’s how you can pay less in interest charges.
While you should strive to pay your credit card bill in full every time, let’s face it: sometimes life gets in the way. An emergency, an unexpected expense or even lingering holiday debt can throw your best credit card practices into disarray and leave you carrying a balance.
Typical credit cards charge an annual interest rate (AIR) of 19.99% or higher, which is a steep price to pay for a balance carried on a card. And compound interest—interest charged on your interest—can have a snowball effect on your outstanding debt. Here’s how to avoid high interest charges on your credit cards.
If you never miss a payment or carry a balance on your credit card, the card’s interest rate won’t affect you. But if you occasionally need extra time to pay down your debt, the interest rate on your credit card is a big—and compounding—deal.
To better understand compound interest, let’s look at a simple example. Imagine you owe $10 and your interest rate is 20% per month. After one month, you’d owe $12 ($10 in principle and $2 in interest). The following month, you’d be charged 20% on the total of $12, which would cost you $2.40. That would bring your balance to $14.40. As you can see, the debt adds up fast, which can really hamper your ability to pay it off in a timely fashion.
There are plenty of books outlining ways to tackle debt, but before you open your reading app, consider this simple tactic: Use a balance transfer credit card with a lower interest rate. For example, the MBNA True Line Mastercard* is offering a promotion for new cardholders: it has a 0% interest rate on balance transfers for 12 months with a 3% transfer fee, and after that, it charges a significantly lower-than-average 12.99% interest on purchases and 17.99% on balance transfers (and 24.99% on cash advances). Let’s take a closer look.
One debt-reduction strategy is the balance transfer, where you move debt (your balance) from a higher-interest credit card to a lower-interest credit card. The terms of a balance transfer vary, so you should consider the interest rate, the timeline and the transaction fee.
The MBNA True Line Mastercard has a balance transfer offer of 0% interest (the rate) for 12 months (the timeline) with a 3% transaction fee (minimum $7.50). This means that when you move your balance to the True Line, you’ll have a full year to reduce or pay off your debt without interest (and compound interest) getting in the way. The 3% transaction fee is a one-time charge to make the move, and it’s based on the amount you transfer over.
When you use a credit card with a low interest rate, your interest charges are reduced—and you will also pay less compound interest in turn.
Here’s the difference in interest payments between a typical card with a 19.99% AIR and one with a 12.99% AIR. For this example, we used a credit card balance of $1,000, including compound interest, and assuming no payments are made and no further charges are added:
| Credit card balance | Annual interest rate (AIR) | Daily interest rate | Balance after 1 month | Balance after 12 months | Annual interest payment |
| $1,000 | 19.99% | 0.055% | $1,016.56 | $1,221.21 | $221.21 |
| $1,000 | 12.99% | 0.036% | $1,010.73 | $1,138.69 | $138.69 |
Difference after one year: $82.31
Nobody sets out to rack up credit card debt, but you can make smart choices about how to handle it should you need to. The simplest way? A balance transfer credit card with a low interest rate like the 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.
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 |
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.
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