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If you carry a balance on a credit card, this one is for you. We walk through the order to pay debt off and one way to lower the cost while you do.
Disclosure: We're a FinlyWealth affiliate and may earn a commission from links on this page. Rewards, fees and offers change, so check the issuer's site for current terms before applying. Cash rebates are paid by FinlyWealth, not by the bank or card issuer, and have their own terms.
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The 5 Ideas From Atomic Habits That Actually Stick
Most people who read Atomic Habits remember one line: small habits compound. Here's the rest worth keeping:
Focus on systems, not goals
Build habits around who you want to become
Make the good habit the easy one
Design your space so the right choice is the default
Shortform breaks down books like Atomic Habits into the key ideas, the reasoning behind them, and how to put them to work. This one takes about 15 minutes.
Then do the same for the next book on your list.
THIS WEEK'S MONEY LESSON
Why your most expensive debt should be the first one you pay off
A credit card balance you carry is usually the most expensive money you owe
Say you have $3,000 on a card that charges 20% a year, and you pay $100 a month. It takes 42 months to clear, and you pay about $1,193 in interest.
Raise the payment to $200 and the card is gone in 18 months, with about $481 in interest. That extra $100 a month saves you about $700.
Paying off a 20% card earns you more than any savings account can
Every dollar you put toward that card saves you 20 cents a year in interest, with no risk. No savings account comes close.
The federal Financial Consumer Agency of Canada (FCAC) gives the same advice. Pay your highest interest debt first, and you pay less interest overall.
Pay the minimum on every debt, then put each extra dollar on the highest rate
Start with a list of everything you owe: cards, lines of credit and loans. Note the balance and interest rate of each. Keep paying the minimum on all of them.
Then put every extra dollar toward the one with the highest rate. When that one is paid off, add its full payment to the next debt on the list.
Some people pay the smallest balance first to clear one debt sooner. It works, but it usually costs more. In one example from OCM Life, a Canadian personal finance site, the highest rate first saved about $650.
A balance transfer can lower your rate while you pay, if you follow three rules
A balance transfer moves what you owe to a new card with a low promotional rate. The FCAC says the low rate usually lasts 6 to 18 months. You pay a one-time fee, usually a percentage of the amount you move.
Say you move the same $3,000 to a card that charges no interest for 12 months, with a 3% fee. The fee is $90, and $257.50 a month clears the balance in a year. On the 20% card, those same payments would cost about $363 in interest.
Three rules make a transfer work:
Pay it off before the low rate ends. Divide the balance by the months you have, and pay that each month.
Never miss a payment. One missed payment can cost you the low rate.
Stop spending on both cards. On the new card, your minimum payment usually goes to the low rate balance first, as the FCAC explains. New purchases would sit at the full rate.
An automatic payment keeps the plan going, even in a tight month
Schedule it for the day after payday, for the same amount every month. A steady $200 does more than a $400 payment you skip.
YOUR 5-MINUTE STEP
Use the FCAC's free calculator to see what your card is costing you
Get your latest statement and open the Credit Card Payment Calculator. Enter your balance, your interest rate and what you pay each month. It shows how long the card will take to clear and the interest you will pay.
Then add $50 to the monthly payment and run it again. The difference is what the extra $50 is worth to you.
PARTNER OFFERS: 3 THAT FIT THIS WEEK'S LESSON
If a balance transfer makes sense for you, here are three cards that offer one. Each comes with a cash rebate from FinlyWealth, a Canadian site that pays you when you are approved. The rebate is on top of the bank's own offer.
1. No annual fee, 9 months: the Scotia Momentum No-Fee Visa Card
A good fit if your balance is small enough to clear in 9 months. New cardholders get a low introductory rate on balance transfers for 9 months. You need a personal income of $12,000 and no Scotiabank personal credit card in the past 2 years. Apply by April 30, 2027. FinlyWealth adds a $50 cash rebate.
2. No annual fee, 12 months: the MBNA True Line Mastercard
A good fit if you need a full year to pay. New cardholders get a low promotional rate for 12 months on balances moved within 90 days of opening. The transfer fee is 3% of the amount you move. It is not available in Quebec. FinlyWealth adds a $50 cash rebate.
3. The biggest rebate: the Scotia Momentum Visa Infinite+ Card
A good fit if you earn $60,000 or more, or $100,000 as a household. New cardholders get a low introductory rate on balance transfers for 12 months. The $120 annual fee is waived in the first year. Like the first card, it excludes anyone with a Scotiabank credit card in the past 2 years. FinlyWealth adds a $150 cash rebate, up from $100, until December 31, 2026.
Pay the most expensive debt first, and stop adding to it while you do. See you Saturday.