Whatever happened to the days when interest rates didn’t result in paying back your borrowed credit twice over? Much like most Americans yearn for the days of two bucks for a gallon of gas, they also wonder what happened to the true low interest credit cards.
They’ve seemingly gone the way of the DoDo Bird and in their place a new threshold of “low” interest rates and introductory APRs. They may look enticing now, much like $3 for a gallon of gas has us rushing to the pump, but what should you know about these cards and should you rush out and get one?
Rule number one of credit card ownership: Pay off your balance each month! Unfortunately, the number of Americans that do are at a dwindling pace. Balances grow and so do the monthly payments. If you are able to pay off your balance each month, you can stop reading now, as you won’t often deal with the interest rate associated with your card. But for the millions of Americans that don’t, read on. We’re here to help you get the lowest possible rates. It is the most important thing you need to look at when choosing a credit card. It is a must if you plan on or could possibly ever carry a balance month-to-month or even year-to-year.
Back in the day, a credit card company would offer a card with a fixed rate and reject or accept your application based on your credit worthiness in regard to that rate. There are a few cards that will base their decision off these more traditional methods, but the number of those cards are dwindling. Banks today will now offer a series of rate options for each card and depending on your credit history and credit score, you will be given a rate based on prime interest rate plus their denoted added rate. Examples of these series are 12.99%, 15.99% or 18.99%. This makes the lowest interest rate cards variable by not only rate, but by credit worthiness. Today’s rates just can’t compare to the fixed rates of yesteryear that are shockingly low by comparison.
So, it’s 2012. What should you be looking for? Introductory APRs are invaluable to those of us that carry a balance month-to-month on a credit card. Why? Because by now, you’ve probably built up quite the pile of debt on one or several other cards and by transferring the balance of those cards on to a new card with a 0% APR for potentially as long as 18 months, you can knock down a LOT of your current debt in a short amount of time when every dime you pay goes directly to the outstanding balance. Fist pump, no interest!
These cards typically come with a 3% (on average) balance transfer rate which includes the percentage of the total balance you want to transfer. This will be included in the new total balance you owe. If you’re an average American, it will take only a month or two of normal payments to get back to the previous outstanding balance. These introductory rates are only for a short period of time. Usually ranging from three to 18 months. These promotional periods often include current purchases as well.
Rates in today’s market are often focused around the variable rate. Not gone, but certainly dwindling are offers featuring fixed rates. The lowest offers available out there are variable based on the prime interest rate. The Prime Interest Rate is the interest rate banks will charge to their most creditworthy customers. Not to get too technical, but a bank will charge ~3% more than the United States government will, all factors being the same. Most banks will have the same rate and the ones that don’t will vary minimally. Currently, the Prime Rate is 3.25%. It has been that low since 2009. However, it wasn’t very long ago Prime Rate was as high as 8.25% (2007).
These days, and a solid argument to jump at current rates is because it’s tough to find a card that has a reliable long term low interest rate.
This guest post comes from Chris, founder of CompareCards.com. CompareCards.com was established in 2005 and continues to educate consumers about the rewards and dangers of using credit wisely. Chris will be attending FinCon12, so make sure you say hello!