Credit card debt has become a ubiquitous part of modern life. However, owning a low interest credit card can make a large difference to the state of your finances compared to owning a credit card subject to a higher interest rate. In fact, a low interest credit card can be used to your advantage in the context of your financial situation.
The Two Types of Low Interest Credit Cards
Ongoing low interest – the interest charges are kept to a minimum. These cards are usually aimed at the consumer who maintains a balance on their credit card from month to month.
Introductory low interest – credit cards like these are attractive to people who have a substantial debt with another credit card provider and want to attempt a balance transfer. The interest rate for the new credit is low during the introductory period (6-12 months), during which the consumer attempts to pay off the amount owed to the first credit card provider
For Whom Does This Work?
In general, a low interest credit card is best suited to people who don’t intend to take advantage of the interest-free period most credit card providers use to entice new applicants. These cards are also a great alternative to debit cards for occasional or infrequent credit card users.
Get the Lowest APR Possible
In order to make the most of a low interest credit card, it’s in your best interest to shop around for the card with the lowest annual percentage rate (APR) you can find. This is especially relevant if you have a tendency to allow a balance to remain on the card. As low as the interest imposed is, it would certainly be much better if you paid it off on time.
Obtaining a credit card with the lowest APR is one thing; you also should determine what the annual fee is, if any, and if a different interest rate applies when it comes to cash advances. Some credit cards may also come with a credit limit that is lower than you would like.
Look For Longer Balance Transfer Time Limits
A low APR is always welcome, but the search for a low interest credit card should also include as low an interest as possible on balance transfers too. Additionally, the duration of balance transfer interest may be different from that of the APR. For example, some cards may offer a zero interest APR for up to 15 months but an interest-free balance transfer for 3 months, or vice versa.
Credit card providers may also limit the time in which you can carry out the transfers. Some do so by only authorising transfers during the application process itself. Others may be more lenient, but only allow balance transfers to be made during the introductory period.
Always Read the Fine Print
When you’re looking for a low interest credit card, it’s easy to get sucked in by the hype. The fine print of any credit card contract is where you’ll find out about annual fees (which may be nonexistent, or may be high enough to offset the low interest rates), penalties for exceeding the credit limit and whether the low interest is only valid for an introductory period.
Greater Financial Freedom
A low interest credit card is a cost-effective measure to use when shopping. Whether you use it to pay for the groceries or a high-end computer, the interest rate means you’re charged less if or when you neglect to pay the balance. As such, it’s easier to clear your credit card debt.
If your finances are stable enough, a low interest credit card can be used to take out a small loan, such as that used to buy a new car. Chances are, the interest on the card would be lower than that charged for the loan, allowing you more control over your own hard-earned money while simultaneously repaying the loan.
“Save” Money on Existing Debt
Most people look to low interest credit cards when they’re already carrying a certain amount of debt on a credit card with a high interest rate. Transferring the balance from the old card to the new enables you to pay off the debt, or principal, without incurring subsequent interest charges.
If you sign up for a credit card with an introductory low interest offer though, you need to ensure that you pay off the principal within the introductory period or risk standard interest rates being applied.
You also need to remember that balance transfers work to clear the cheaper credit card debts first (paying for a television as opposed to paying for a car). This means the more expensive debt will continue accumulating interest until you finally begin paying it off. Therefore, it’s best to put off making new purchases with the new credit card for the time being if you’re determined to save hundreds of dollars from paying off the earlier balance.
Credit cards are useful tools that offer the user greater financial flexibility and greater spending power. However, they shouldn’t be used as a panacea to monetary woes. It’s also important to read the fine print of any credit card order in order to have an accurate idea of what you’re getting into.
