Editorial Policy

3 Reasons to Choose a Low Interest Credit Card

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By Eva Norlyk Smith, Ph.D.
May 22, 2009

Low interest credit cards often get overlooked compared to the more flashy members of the credit card family, such as 0% balance transfer credit cards or rewards credit cards. However, a low interest credit card can be a great ally in managing your finances, and under certain circumstances deserve a closer look.

How do you know if a low interest credit card is for you? Here are three situations where low interest credit cards are the best option.

1. Choose a Low Interest Credit Card If You Carry a Balance on Your Card from Month to Month

A basic rule of thumb when using credit cards is to pay off the balance in full every month to avoid accumulating expensive interest charges. But let’s face it, there are times when that isn’t possible.

If you have to carry a balance from month to month, a low interest card with an ongoing low APR can save quite a bit of money. For example, a standard credit card with a 19.99% APR will cost $199 in interest per year for every $1,000 you have outstanding on the card. Compare that to $74.90 a year for a low interest credit card with a 7.49% APR. That’s a $125 savings a year for every $1,000 owed!

2. Choose a Low Interest Credit Card for Large Planned Purchases

If you’re planning a large purchase, putting it on a low interest credit card can help you buy it earlier, rather than having to save the money first.

If you use low interest credit card offers wisely, you can often come out ahead. For example, if you use a 7.49% low interest card to buy an item at 25% off, you can pay it off over three years and still break even.

A word of caution: Avoid using low APR credit cards for impulse purchases, as that is a formula for getting deeper and deeper into debt.

3. Choose a Low Interest Credit Card to Consolidate Multiple Card Balances.

Consolidating several high interest credit card balances onto one low interest credit card isn’t just convenient, it translates into significant savings. This occurs because the best low interest credit cards come with an introductory 0% APR on balance transfers, often up to twelve months. When the 0% balance transfer offer expires, you still pay only the low APR that comes with the card.

One final note: To qualify for the best low interest credit card offers, you need to have excellent credit. Credit card issuers always advertise the best rates available, so people with good and fair credit may find that the terms offered after they apply for a low interest credit card are somewhat higher than those advertised. Still, it’s worth applying. Even if you don’t get the lowest rate available, any lower interest card represents a saving.