Interest Rates
If you plan on carrying a balance on your credit card, then the interest rate associated with that card is extremely important. The higher the rate is, the more you will have to pay for using the card for purchases. For example, if you buy a $1200 TV using a credit card with 24% APR, you will spend $576 in interest if you pay off that purchase over a two-year span. If you purchase that same TV with a low-interest credit card that has an APR of 11%, you will spend only $264 in the same time period. You will save over $300. That’s a good amount of savings. The interest rate will depend on your credit, so it’s critical to make sure you have good credit.
Balance Transfers
Another way for you to save money with a low-interest credit card is to use it for balance transfers. A balance transfer is when you use your low rate card to pay off your high-interest rate credit cards. I applied for a balance transfer card at the beginning of the year. I was approved for a balance of $2000. I was able to transfer $2000 from my high-interest credit card to the new one. I’ve saved at least $60 a month on interest since I did that. The way that things are going right now, I will be able to pay the balance transfer card off by May.
Pay off Debt Faster
Low-interest credit cards make it easier and faster to pay off your credit card debt. As I mentioned earlier, the credit cards can be used to complete balance transfers. When you transfer balances from your high rate cards, your debt will get the lower interest rate. So if you continue to pay the same amount each month that you were paying for the higher rate cards, your debts will be paid in full much faster.
Here’s another example, say you had a $1000 balance on a 21% APR card. The minimum monthly payments for that card were $40. By making just the monthly payments, it would take you seven years and 11 months to pay off the card. If you were able to do a balance transfer to a low-interest card with an APR of 9.9% but continued making the same $40 monthly payment, you’d pay off the debt in 6 years instead. Paying the card off in 6 years is much better than taking nearly eight years to do so.
Switching your credit card to one with a lower interest rate will save you money. Lower interest rates will mean that you have lower interest payments. Balance transfers will save you money. It will allow you to pay the debt off faster.
Are you contemplating on switching to a low-interest credit card? Why or why not?
Jason Butler
Jason Butler is an Atlanta native, as well as businessman, blogger and teacher. Not only is Jason a prolific flipper, marketer, writer and side hustler his number of years in higher education and student support have given him expert knowledge in understanding the economics of the student loan industry.
The interest rate on my credit cards is a totally irrelevant piece of information. If you pay the bill when it comes, then you don’t pay interest. There are very few things on the average person’s credit card bill that are things you can’t like without. If your tv broke, do without until you have saved the money to buy a new one (or better yet have money set aside for such things before they happen).