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If you have a credit card balance and are also setting aside some funds every month to your savings account or trying to invest the money in the stock market, then you're going about it the wrong way, sorry to say!

No, no, this isn’t one of those “get rich quick schemes”, as you had probably hoped for.  There is one way to net an easy 19% to 21% return, and it’s probably not what you had in mind.

What I’m talking about is to get rid of that balance (if you have one) on your credit card(s). You can pay off multiple credit card balances in one shot with a credit card loan from Borrowell (Canada’s leaning online lender) or work towards it gradually by controlling your own cash flow.  Of course you can combine the two strategies in order to supercharge your paydown.  Use the small loan and free credit report to pay the cards down (then change your spending/credit habits) before focusing like a laser on then paying down your one simple loan (and not being distracted by multiple balances).

If you have a credit card balance and are also setting aside some funds every month to your savings account or trying to invest the money in the stock market, then you’re going about it the wrong way, sorry to say!

In your savings account, you’re likely to get say… 1.6% interest on your investment.  In the stock market, you may average 8% (if you’re lucky, these days!)… if you have a credit card that is carrying a balance, and you’re only paying the minimum $10 a month, then you are paying the credit card companies (and they love you for it, trust me) 19% interest per annum calculated per day.

What might this look like?


This example might be an exaggeration (and I hope it is, for you):


Let’s say you have $1000 of credit card balance.  If the yearly interest rate was 19%, and the minimum payment you made was $10 per month or 3% of the balance, it would take you 125 payments (that’s 10 years!!).  The interest you would pay over the ten years is $889.  That amount is almost equal to the amount you borrowed from the credit card companies in the first place.

A more realistic example would be if you had $1000 of credit card balance over a few months. Let’s say three months.  You bought that big screen television (with the PVR box, of course) and you just didn’t have enough money in this month to pay for it all.  What would the interest charged look like?

Let’s do the calculations and see:

  • $1000 on a 19% annual interest credit card.
  • Calculate the average daily balance (that is, what the credit card company charges you for each day you don’t pay the $1000 back).
  • Average Daily Balance= $1000 divided by 30 days= 33.3
  • Calculate the daily interest rate
  • Daily Interest Rate= 19% divided by 365 days= 0.052%= 0.00052
  • $1000 x 0.00052=$0.52 per day (I know this seems like peanuts, but it adds up!)
  • So if you paid it off in three months: $0.52 x 30 days x 3 months= $46.8
  • $46.80/$1000= 4.68% in just three months, and over a year it is 19% of course.

As you can see from the above calculations, that’s quite a pretty penny.  Money that just goes “poof” and doesn’t get you anywhere except more and more resentful (possibly? maybe?) of the big screen television you just bought.

My boyfriend doesn’t keep the best track of his credit cards- he just forgets to pay them sometimes and is late maybe five or ten days, but it still sucks to pay interest when you didn’t even mean to not pay.  He cringes (as do I) when I scour over his credit card statement sometimes and see: “outstanding balance”.

Consumer debt is not a good debt to have.  It doesn’t get you anywhere, except more in debt.

Okay, that’s enough nagging for one day!!

Here’s some ideas on how to get out of consumer credit card debt.

  • Cut up those cards (yes, it really does work because you can’t use them anymore!)
  • Use cash from now on and take out biweekly (with your paycheque) what you need for the two weeks and just stick to it
  • Write down what you spend your money on
  • Pay off as much as you can as fast as you can
  • You may have to scrimp on your (automatic) savings/ retirement contributions until you get rid of the credit card balance
  • Read up on others’ experiences (check out my PF Blog love page- lots of personal finance bloggers share with you their experience on how they got out of debt)
  • There are some non-profit agencies that help people get out of debt, check around in your area
  • You will feel relieved once you get rid of that balance.

Good luck, and may the force be with you!

Article comments


Oh credit cards…. I’ve been spending a little too much on thee lately!

It’s what happens when one’s base salary goes up…. what a shame. Got to start saving harder for the remainder of the year!

young says:

@Financial Samurai- yeah- darn raises! They cause lifestyle inflation =)

Squirrelers says:

I like these tips, and especially your use of calculations. This should illustrate clearly to everyone why it’s not sensible to carry credit card balances and pay interest. Pay it all on time!

I’m variable all the way since i purchased my house in 2008!

Currently @2.00%, I am looking to finish off the house in 5 years or less if all goes well. this is an extremely important step towards financial independence.

How about yourself?

young says:

@Mich- nice!! Paying off the house in 7 years! That is fantastic…! Yeah, I have a variable pre-approved mortgage (I’m houseless but looking). I’ll have a post next week about my choice/ plan to buy a house at this time.

Of course the next quick return would be putting money in your fixed rate mortgage.

You not only get a quick return of say 5%, you actually save the interest amount before taxes. Example, assume you save 1000$ in interest after a small lump sum, in reality you save 1300$ if your tax bracket is 30% because you can take that money that you don’t have to pay in the future and put it to work in your RRSP….

young says:

@Mich- True true- Are you a fixed rate mortgag-er? They have recently dropped rates, but it’s still at around 4%.

Little House says:

Great tips. I’m always motivated to pay off my debt when I figure it out in a debt repayment calculator. I use CreditKarma’s, it shows exactly how much interest will be paid based on how much is paid toward the balance.

young says:

@Little House- CreditKarma- cool thanks for sharing- good to always know where you’re at. =)