Debt consolidation is essentially the process of combining multiple debts into one. The goal is often to reduce the monthly payments and the total interest accumulated on the debt. As a result, the task of paying off your debts is simplified and your credit rating improves. Consolidating your debts can include a combination of several types of debt, such as credit cards, car loans, lines of credit or mortgages.
Let’s assume you have two credit cards with a balance on each. The first charge 17.99% interest and the other charge 19.99% interest. Say you have a balance of $ 1,000 on the first and a balance of $ 5,000 on the second. Logically, you will have to make monthly payments of $ 551.01 and pay $ 612.12 of interest. It’s easy to notice that debt is accumulating, interest rates on these cards can go up quickly. However, by consolidating this debt into a balance transfer credit card, it is possible to repay that debt faster and at a lower price.
A balance transfer credit card offers a very low preliminary rate so you have the opportunity to pay off your debts with a single monthly payment and a very low interest rate.
Here are two of our favorite cards:
MBNA Platinum MasterCard
- No annual payment
- 0% annual interest rate on balance transfers for the first 12 months
- Accident and Trip Interruption Insurance included
The MBNA Platinum MasterCard is an effective option for those looking to repay their debt in one year. The card offers an annual percentage rate of 0% on the account during the first year. This means that when you transfer your debt to this credit card, you will not be charged the interest on your balance transfer for a full year. This is an excellent opportunity to significantly reduce your debt.
This MasterCard credit card also comes with no annual fee. This is another way to save money and reduce your debt. However, each transfer costs you 1% or $ 7.50 depending on who gives the largest amount. If your transfer is less than $ 750 you will be required to pay a fee of more than 1% so try to make all your transfers at the same time instead of making multiple transfers.
With 0% interest for 12 months and no annual fee, it’s easy to see why the MBNA Platinum Plus MasterCard is considered one of the best balance transfer credit cards for Canadians.
SimplyCash Card from American Express
- No annual fee
- 0% interest rate on balance transfers for the first six months
- Get a discount on any eligible purchase
SimplyCash by American Express has an annual interest rate of 0% on balance transfers. However, this offer is only valid during the first six months. This card is a good option if you are able to repay your debt during this time.
The card also comes with the benefit of discount on any eligible purchase including some restaurants, grocery store and gas station for the first six months (up to $ 250). You will also receive a rebate of $ 1.25 on all other purchases after the welcome rate is completed.
It is important to keep in mind that with each balance transfer card, you should avoid making purchases until the debt is repaid in full. Otherwise, you will have to pay the regular interest rate on your future purchases and therefore your debt will only accumulate.