4.3.6 Cost of credit cards
- 4.3.1 How credit cards work
- 4.3.2 Benefits and risks of credit cards
- 4.3.3 Compare credit cards to debit cards
- 4.3.4 Prepaid cards
- 4.3.5 Choosing a credit card
- 4.3.6 Cost of credit cards
- 4.3.7 Case study: Credit card use
- 4.3.8 Credit card statements
- 4.3.9 Tips for credit card use
- 4.3.10 Video: Using credit cards wisely
- 4.3.11 Credit card fraud
- 4.3.12 Video: Debit and credit card fraud
- 4.3.13 If you are a victim of debit or credit card fraud
- 4.3.14 Summary of key messages
If you pay off your credit card balance in full by the due date indicated on your statement, you won't pay any interest on most cards—in effect, you will be borrowing money for free.
If you don't pay your balance in full by the due date, you will have to pay interest. But you can still reduce the amount of interest you pay, depending on how much you pay each month.
Take these three examples. Assume that you have a credit card balance of $1,000 and that the annual interest rate is 18 percent.
- Option 1: You make the minimum payment of 3% or $10, whichever is greater.
- Option 2: You make the minimum payment of 3% or $10, whichever is greater, plus an additional amount of $5 each month.
- Option 3: You pay a fixed amount of $100 each month.
The chart shows how long it will take to pay off the charges and how much interest you will pay using each of the three payment options.
$1,000 at 18% |
Option 1 |
Option 2 |
Option 3 |
---|---|---|---|
Time to pay off | 10 years | 6 years and 2 months | 11 months |
Interest paid |
$798.89 |
$512.52 |
$91.62 |
Total paid |
$1,798.89 |
$1,512.52 |
$1,091.62 |
Amount saved |
- |
$286.37 |
$707.26 |
Time saved |
- |
3 years and 10 months |
9 years and 1 month |
Clearly, you can pay off the balance much more quickly, and pay much less interest, if you pay a higher amount every month.
For more information
To compare credit card repayment costs using different payment methods and interest rates, use the Financial Consumer Agency of Canada's Credit Card Payment Calculator.
To see how long it will take to pay off a credit card balance using different interest rates and monthly payments, use the Pay off credit cards and debt calculator from the Ontario Securities Commission.
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