Low-Interest Credit Cards

Credit cards allow you to make immediate purchases even if you do not have enough money for those purchases in your bank account.

It also protects the money in your bank account, as it is more difficult for a credit card thief to connect a credit card to your bank than a debit card. However, credit cards may worsen your spending habits if you are in a serious amount of debt. It is easy to forget that purchases made with credit are not free. If you spend a large sum of money and do not always make your monthly payments on time, you may cause your interest rates to dramatically increase. This will damage your credit score and may even lead to a debt spiral.

Consequently, it is important to use your credit card wisely. It is also important to look for credit cards that offer low interest rates. Though a low interest rate will not prevent you from spending too much money, it will not cause your debt to increase exponentially. In fact, using a low-interest credit card may accelerate your goal of becoming debt-free.

An Explanation of Low-Interest Credit Cards

To gain an understanding of how a low-interest credit card works, it is important to first understand the concept of interest. When you make a purchase on a credit card, that amount gets withdrawn from your credit limit. A credit card statement will then show you the amount you have used and the amount of credit you have left. The amount you have used is considered your credit debt balance. Each month, a certain amount of interest will be added to your statement. The size of the interest fee will depend on your chosen credit card company, the interest rate you agreed upon and the total balance on your card.

Some companies require annual fees as well, which you must pay in order to continue using the card. Every company will have annual percentage rates (APRs), which are interest rates calculated by year instead of by month. APRs will vary significantly depending on the type of credit card you use, the benefits associated with the card, your credit score and more. For example, cards that offer cash back on certain purchases may have higher APRs. As a result, it is important to choose a card based on the features you find most valuable.

You may be able to avoid paying interest on a credit card altogether if you pay off your balance as soon as possible. This may be difficult to accomplish, especially if your total debt is equal to or more than 50 percent of your income. Low-interest credit cards are therefore very valuable, because they will allow you to pay the minimum amount in interest while making progress on your debt.

Reasons to Look for a Low-Interest Credit Card

Low-interest credit cards may have a variety of perks that can lower the amount you must pay each month. These are designed to incentivize you to apply for a new card and include:

  • Interest rates that are lower on average than any other credit card. A lower interest rate translates to fewer add-on costs. According to a study completed in 2018, the national average APR for credit cards almost reached 17 percent. In comparison, low-interest credit cards often have APRs below 13 percent. If you have a good credit score and find a good credit card company, you may even qualify for an APR of 10 percent or lower.
  • Long promotional periods. Many low-interest cards offer long promotional periods, during which you will not have to pay any interest on your debt. You must still make payments to reduce your balance, but you will lower the total amount of debt that is subject to interest. If you pay off a large amount of debt during this period, you will lower the total amount you owe.
  • It may be easier to have a credit card balance that stays on your card for a while. Ultimately, the cheapest way to get rid of your debt is to pay it all off at once. However, this is often the most impractical solution. You may need to have a debt balance in order to afford your living expenses until you receive your next paycheck. However, it is important to factor the cost of interest into the total amount that you owe, even with a promotional period. Otherwise, you may not be able to afford to pay interest on top of monthly payments after your promotional period ends.

It is important to remember that not all credit cards with low-interest rates are worth it. Some companies may try to entice you to apply for a card by offering bonuses or promotions. However, these companies often require you to pay unexpected fees if you maintain a balance over a certain amount. A low-interest credit card company, on the other hand, does not normally penalize you for having a balance unless you fail to make monthly payments.

Why a Low-Interest Credit Card May Be a Good Option for You

Applying for a low-interest credit card may not be a good option if you have poor credit or have difficulty making monthly payments on time, because you will inevitably pay more in interest. If you plan to pay off all your credit card debt immediately after making purchases, however, this type of card may be a good idea. In effect, your APR will not matter.  

You may also consider getting a low-interest card if you cannot pay off everything immediately but are still willing to pay interest each month. Some low-interest credit cards are balance transfer cards, which will allow you to consolidate all your debt onto one card. With a low-interest balance transfer card, you may receive better terms in the contract. These cards may also allow you to pay off your debt with 0 percent interest during a promotional period.

Obtaining a Low-Interest Credit Card

Applying for a low-interest credit card is a relatively simple process. First, research different credit card companies to determine which offer best suits your needs and your spending habits. Then, contact the company you select online or by phone. Be sure to ask the provider about the lowest APR options available. Make sure you then read through the terms and conditions of the credit card.