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Finding the right credit card deal: Sundaram's story

man and credit cardsSundaram 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.


Regular-rate card (19% interest)
Balance owing Interest Annual fee
Annual 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 owing Interest Annual fee
Annual 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.