Debt consolidation is essentially the process of combining multiple debts into one. The goal is often to reduce monthly payments and the total interest accumulated on your outstanding debt. As a result, it should become easier to pay off your debt and thus also improve your credit score. Consolidating your debt can include combining debt from credit cards, car loans, lines of credit, and mortgages.
Let’s assume you have two credit cards with balances on both of them. One charges 17.99% interest and the other charges 19.99% interest. We’ll say you have a $1,000 balance on the first card and $5,000 on the second. If you were to try to pay this debt off in one year, you’d need to make monthly payments of $551.01 and pay $612.12 in interest. It’s easy to see that as your debt accumulates, the interest on these cards can add up quickly. However, if you consolidate this debt to a balance transfer credit card, you may be able to pay off this debt more quickly and at a lower cost.
A balance transfer credit card offers an extremely low introductory rate, which will provide you with the opportunity to pay off your debt with one monthly payment and a lower rate of interest.
SimplyCash™ Card from American Express®
New SimplyCashTM from American Express Cardmembers can earn 4% cash back on purchases (up to $200 cash back) for the first 6 months of Cardmembership
- No annual fee
- 0% annual interest rate on balance transfers for the first six months
- Earn cash back on all eligible purchases
The SimplyCash Card by American Express also has 0% annual interest on balance transfers. However, the offer is only available for the first six months. This card is a great option if you think you can pay off your debt within the six-month period.
It also has the added benefit of earning 5% cash back on eligible purchases at restaurants, grocery stores, and gas stations for the first six months (up to $250). You’ll also earn 1.25% cash back on all other purchases and after the welcome rate ends.
One thing to keep in mind with any balance transfer card is to avoid making purchases until your balance is paid off in full. Otherwise, you’ll end up paying the regular interest rate on future purchases and end up accumulating debt again.
- What is a Balance Transfer and How Does it Work? 7 Things You Need to Know
- The Best Credit Cards in Canada
- The Best No Annual Fee Credit Cards in Canada
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