Managing Credit

A credit card is a loan, so the lower your balance, the less interest you'll pay. You can avoid paying interest altogether on new purchases by paying the new balance total by the total minimum payment due date. For cash advances, access cheques, deposits or balance transfers interest will accrue from the first day of the transaction. But whatever types of transactions you make, if you can't pay your new balance total in full, paying more than the total minimum monthly payment can help reduce your interest costs.

Since it's easy to spend more than your credit limit, keeping track of your balance is critical to avoiding over-limit fees. Keep in mind that:

• You can easily monitor your balance by reviewing your account statement in online banking or by phone.
• In addition to your transactions, fees and interest can also add to your balance and can put you over your credit limit.

Transaction fees are usually based on the amount of the transaction. You may not be able to avoid them, but if you understand how they work, you can often pay less. Here are some basics:

• • Balance transfer, access cheque and deposit fees-transferring balances to a creditor, writing a cheque or making a deposit to a chequing account can be a great way to take advantage of a lower interest rate, but sometimes there's a fee attached. Consider both the rate and the potential fee before you decide whether a balance transfer, access cheque and/or deposit offer is right for you.
• Cash advance fees-most issuers charge a fee for cash advances, which can be accessed through an ATM, over the counter at a bank, or a Western Union office. If your issuer has a cap on fees, you could save money by taking one large cash advance, rather than several small ones. Before taking the cash advance, factor in the amount of the fee to help you decide if the convenience is worth the cost. Also check to make sure you have the available credit as some issuers including MBNA not only have credit limits but also cash advance limits that restrict the amount of cash available.
• Cash equivalent fees-"cash equivalents" are items that can be used as or changed into cash, like money orders, casino gaming chips, foreign currency and wire transfers. If you need to buy them, you'll have to accept the fee, but be sure to account for the fee amount so you don't go over your credit limit. Cash equivalents are treated the same as cash advances.

Since banks charge fees for their services, the only way to avoid credit card fees is by not using the service. Here are a few examples:

• Annual fee-this can be avoided by simply choosing a credit card with no annual fee. However, bear in mind that the interest rate may be higher for these types of cards.
• Balance inactive fee-if you don't plan on using your credit card for more than a year, simply contact the issuer and close the account.
• Statement copy fee-while your monthly statement is free, you will be charged for additional paper copy requests. This can be avoided by filing your account statements in a safe place at home. You can also download free copies of the last 6 months of statements from Online Banking.
• Returned payment fee-this can be easily avoided by making sure that you have enough money in your chequing account to cover your payments before you send them out.

A balance transfer is where all or part of a balance (debt) owed with another creditor is transferred from that creditor to another. This is usually done to save money on interest rates.

• Potentially pay off existing balances with less interest-by transferring debt at a higher annual interest rate to a lower annual interest rate, you'll save the money you would have paid in interest on such balances.
• Potentially clear what you owe faster-by transferring higher annual interest rate balances to a lower annual interest rate, more of each payment you make will go towards reducing your debt rather than paying off interest. You'll be surprised how quickly your debt can be reduced this way.
• Make your finances easier to manage-by transferring all your balances to one card, you can keep your finances organized with everything you owe in one place. You also get the added benefit of one monthly payment.
• Potentially make your finances easier to manage-by transferring all your balances to one account, you can keep your finances organized with everything you owe in one place. You also get the added benefit of one monthly payment.

There is often a fee for transferring balances from one creditor to another. Check the specific terms and conditions of your account.

Yes.

At MBNA, your credit card application may allow you to request the transfer of balances. After you are approved, you can go online at www.onlineaccess.ca or call us to transfer as many loan balances as you like up to the credit available on your account portion of your credit limit. Learn how at Balance Transfers & Cash Access.

Yes, this will depend on your credit limit which is determined by the issuer when you open your credit card account, as well as the fees associated with the transfer. The credit limit on your account will be individual to you and is determined by a number of factors including your credit history.

Access cheques are a form of credit device that can be used like a regular cheque to access credit available on your account. Access cheques can be written on your credit card account up to your credit available. You can use access cheques to pay for goods and services or to deposit funds into a bank account.

There is no fee for the cheque itself. However there is typically a transaction fee in an amount equal to a percentage of the amount of the cheque. In addition, interest on access cheques is charged from the date a cheque is cashed. Any initial promotional annual interest rate period on cheques runs from the date your account is opened until its specified end date.

Even if math isn't your favorite subject, the Annual Interest Rate (AIR) for your credit card is a number that you should be familiar with. The AIR describes the cost of your credit as an annual rate.

Understanding your AIR(s) can help improve your financial decisions. You could save by assessing your current rate(s), comparing rates for new offers and avoiding actions that might trigger a default rate. Understanding this critical feature of your account can help you save money in the long run.

It's not unusual to have one AIR for purchases and another for cash transactions. Issuers may also encourage card usage by offering promotional AIRs that give you a lower AIR on certain types of transactions for a set period of time. When the time is up, the AIR goes back to the standard AIR. Used wisely, these low promotional rates can save you money.

One type of AIR to avoid is the default AIR. These higher AIRs are often imposed if you pay late or spend more than your credit limit. Some issuers may also impose these rates for other reasons-such as if your payment bounces. Your credit card account agreement will have the details.

Because customers borrow money for varying amounts of time, banks review account balances daily to ensure customers are only paying for the time they borrowed the money. Therefore, banks commonly charge interest on a compound daily calculation. Each day, they review the balance, charge a Daily Interest Rate (DIR) to it, if applicable then charge the subsequent day’s interest based on that day's balance plus incurred interest. This computation continues daily for the entire month's statement billing cycle.

You can check how monthly interest is calculated for your account, by transaction type, in your account agreement.

Because your balance may vary from day-to-day, issuers use different methods to determine the balance that is subject to interest charges. The method your issuer uses should be described in your account agreement. Three of the most common methods are average daily balance, adjusted balance and two-cycle balance. Your issuer will compute separate balances for transactions with different AIRs.

MBNA allocates payments to statement balances at the highest AIR first in descending order to statement balances at the lowest AIR first. This method applies for both minimum payments and any amount received over the total minimum payment due. Most other issuers are applying payments in a less favorable way such as allocating payments across all balance categories in equal proportion to the balance size allocating only payments over the minimum to the highest interest rates first and applying the minimum payment to lower rates.

Be smart-monitor your balances and make sure that you pay off your higher balances first. You can do this by transferring your collective balances to a lower rate credit card. Learn how at Balance Transfers & Cash Access.