Why Do Canadians Pay $10 BILLION a Year in Interest on Their Credit Cards?
The average Canadian cardholder pays over $315 in interest payments per year to their credit card issuer! As a result, Canadian banks alone are earning $8-$10B every year in interest income from cardholders. The reason? While 45% of Canadians carry a credit card balance, over 30% don’t know the interest rate they are being charged. The problem is most credit cards charge 19.99%+ in interest.
Oddly, every bank actually offers low interest credit cards. If the majority of us took a low rate card when we should, our interest costs would be cut in half. The problem is consumers have difficulty anticipating when they are going to carry a balance, and as a result when they apply for their first card typically select one with attractive rewards and benefits, not low standard rates. We choose our card based on how we want to behave, or how we want to be perceived to behave, not on how we actually behave – a similar phenomenon to the stock market.
The good news is, there are plenty of low rate credit cards for Canadians to choose from. If you currently carry a balance, (average Canadian cardholder has a $2,700 credit card balance so don’t feel bad), and you’re paying more than 9.99% in interest per year, you need to transfer your balance to a lower rate card. All that means is that a new bank will pay off your credit card debt with your existing bank, and then you’ll owe the old balance to the new bank at a much lower interest rate (it’s done automatically when you apply).
The best balance transfer offer in the market today is MBNA’s Platinum Plus Mastercard which offers 0% interest for 12 months with no annual fee(the offer is usually 9 months). Just make sure you don’t keep your balance with the card beyond 12 months, or your interest rate will jump to 19.99%. Also, don’t make any new charges on the card that you won’t pay-down, otherwise you’ll be charged 19.99% even during the promotional period.
Another alternative, if you want to transfer your balance to a credit card with a low long-term rate balance transfer rate that will also have a low rate for all new charges, is the MBNA True Line Mastercard. The MBNA True Line Mastercard has a 9.99% interest rate, with no annual fee. I don’t know why, but each of the big 5 banks only offers a low rate card with an annual fee of around $29 and an interest rate of 11.99% (Scotia Bank’s Value Visa Card is an example).