By Keph Senett on February 18, 2022
Estimated reading time: 5 minutes

Are you paying too much credit card interest?

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.

An open laptop on a table beside a pile of receipts.

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.

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.

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.

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MBNA True Line Mastercard

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Annual fee: $0

Balance transfer offer: Receive a 0% interest rate for 12 months on balance transfers completed within 90 days. (Offer not available for residents of Quebec.)

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Card details

Interest rates	12.99% on purchases, 24.99% on cash advances, 17.99% on balance transfers
Income required	None specified
Credit score	660 or higher

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