A low interest credit card is one where the rate of interest is below 12%. Usually a credit card will have an interest rate of 5% to 20% although some credit card providers offer as low as 0% for a limited time period while others can offer credit cards with much higher rates whereas the national average is around 15%.
[Read: Avoiding Overdraft Fees]
If you are interested in tackling debt a low interest credit card can help you to do this if you transfer the balance of accounts you want to pay off to a 0% interest free card you can then reduce the amount of interest you will need to pay back and help you become debt free in a shorter amount of time. On the other hand you may wish to make a purchase or deal with an emergency and need money that you just don’t have but don’t want to have to pay back a lot of interest. Whatever your situation there are a few things you can take into consideration when deciding to apply for a credit card.
How can you find out about low interest credit cards?
There are a number of ways you can find low interest credit cards including:
- your local bank
- national bank websites
- marketing mail or flyers
- credit card websites
- comparison websites
Some or in fact all of these sources will likely have special introductory rates or other benefits to attract new applicants but it’s very important to research the options and read over the terms and conditions before you sign up as the introductory offers don’t last forever and once they run out you may end up paying higher interest rates.
What other benefits may be on offer?
Some low interest credit cards may have other incentives or benefits such as:
- cash back
- travel miles
- supermarket points
- gifts or vouchers
It’s always nice to get something for nothing and if you are currently in a position where you are not in debt and pay off your credit card every moth then a card that offers rewards of make you money is always an added bonus but remember to be cautious and be aware of the terms of receiving these added incentives and benefits. Make sure you compare different cards and find one that is suitable for your needs. Many cards won’t charge interest if you can continually pay off the balance each month and then you get the added incentives. For example, many utility companies will take payment via credit card. You could potentially pay for your bills in this manner then pay off your credit card before your next bill ensuring that you stay within the grace period and pay your bill off in full. The added bonus is you will have earned your incentives as they will be earned when you pay for your bills using your credit card thus giving you cash back, points or miles or whatever your card offers and therefore making you money.
What about different rates?
Low interest credit cards may have different rates for the different things you can do with them. For example:
- If you transfer a balance from another account to your credit card you may get charged a different rate of interest to the rate you will be charged for making new purchases. So if you transfer a balance to pay it off and reduce your interest charges, pay this off first before making any new purchases as usually credit card providers will use money paid to clear the new purchase debt first rather than the balance transfer as they usually charge a higher rate of interest on new purchases.
- If you use your credit card to take money out of an ATM or out of the bank as a cash advance then the provider may charge you firstly a fee to do this and secondly a higher rate of interest for the privilege.
- If you miss a payment your provider may charge a penalty fee or in some circumstances immediately raise your rate to a much higher interest rate. Be very careful about paying your bill on time. This may also happen if you make a late payment.
There are many things to consider when choosing a low interest credit card but the most important thing for you to consider is what may cause higher interest levels and avoid those activities. Remember also, if you only pay back the minimum each month it will take you a lot longer to pay it off because of the interest that will be added onto the total.
What are the advantages of using a low interest credit card?
If you use your credit card carefully it can be advantageous:
- It can be a good tool to help you with your finances
- It can help you pay off debts
- You can use it for purchases that you don’t have the money saved for with no interest
- It can be used in an emergency
- Purchases made on credit cards are insured and protected
- It can offer you incentives and benefits
What are the disadvantages of using a low interest credit card?
If you misuse your credit card you could end up facing some serious financial issues and it’s vital that you are able to manage the debts that you have, otherwise you may just end up going round and round in a vicious cycle.
Watch this video about how to lower credit card interest:
It’s very important that you make sure you pay off your credit card in full each month or at least the minimum payment to avoid charges and potential damage to your credit rating. If you fail to keep up repayments you may not be able to apply for credit in the future and this can have serious repercussions throughout life.
[Read: Avoiding Overdraft Fees]
If you are able to meet payments or pay off your balance each month this will help you to build your credit reputation, reduce the amount of interest you will need to pay and avoid unnecessary charges. Whatever you decide to do make sure you read your agreement before you sign it and get some free independent financial advice if you feel this would help you to make an informed decision.