Save Money on Interest Payments – What You Should Look For In a Low Interest Credit Card

June 26, 2011 by  Filed under: Credit 

If you’ve ever had trouble trying to find a way to reduce your credit card debt, it might not just be a shortfall in your budget holding you back. The amount of interest you pay on your outstanding credit card balance every month could be the real reason you’re finding it so hard to get ahead. Imagine if you switched to a low interest credit card and reduced the amount you pay in interest charges. You could save money on your credit card costs and begin making a dent in the amount you owe.

What Kind of Low Interest Credit Card Will Suit You?

The type of low interest credit card you choose will depend heavily on what type of credit card customer you are and what your goals are.

For example, if you’re the type of customer who really wants to focus on reducing your credit card debt, you should opt for a balance transfer deal with a low interest rate. However, if you’re the type of customer who tends to only use your credit card for emergencies, you might benefit from a credit card with a low purchase interest rate.

Before you begin shopping around for what looks like a really low rate on the advertising take some time to understand which will suit your own financial situation the best.

Here’s a look at some of the differences:

Short Term Balance Transfer Deals

If you struggle from month to month to reduce the amount you owe on your credit card balance, you’ll benefit from shopping around for a low interest balance transfer deal. It is possible to find rates as low as 0% for the first six months.

Compared to the amount you’re paying in interest right now, this represents an enormous saving for you. With your interest costs greatly reduced, this means that more of each payment you make is paid off your balance rather than covering those steep charges.

Throughout that low interest term, you have the opportunity to begin making a real dent in your debt levels.

Keep in mind that the really low 0% interest balance transfer deals tend to only last for up to six months. If you know you won’t be able to repay the entire amount you owe in this time, you could find that when the introductory rate ends, your account reverts to a much higher purchase interest rate. This could put you right back where you began if you didn’t pay down your debt during that time.

Long Term Balance Transfer Deals

For those customers who have larger credit card debts to repay, a longer term balance transfer deal could be the right option. You still get to benefit from a low interest credit card, but instead of only getting the low rate for a few months, it could extend for up to 18 months before reverting to the higher rate.

Be honest about how long it will take you on your current budget to repay the amount you owe. Then shop around for a low interest balance transfer option that gives you plenty of time to reduce your debt.

Over the term of the introductory period, your interest charges will be greatly reduced. However, you’ll have the opportunity to repay far more off the balance by paying your normal monthly repayments.

Low Interest Purchase Credit Cards

If you know you have a large purchase to make on your credit card that you won’t be able to repay in full before the due date on your statement, you could benefit from a low interest purchase credit card.

This is also an ideal option for those people who only use a credit card occasionally and sometimes take a little while to repay their debt amount in full.

There are some credit card providers willing to offer very competitive interest rates on purchases made with your credit card. Even reducing your interest rate by a couple of percent can save you hundreds of dollars each year.

How to Save Money Using Low Interest Credit Cards

Obviously, one of the easiest ways to save money on your credit card costs is to transfer your outstanding balances away from a high interest card over to a really low interest balance transfer card.

Not only will this reduce the amount of interest you pay each month drastically, but it could also reduce your minimum monthly payments as well. What’s more, because you’re paying so much less interest, every payment you make reduces your balance quickly.

Credit cards charge interest on the amount you owe, so as your balance begins to reduce, the amount of interest that can be charged reduces with it.

When a Low Interest Credit Card Could End Up Costing You More

Applying for a really attractive credit card deal, such as a 0% balance transfer offer, might seem like the cheapest possible option. Unfortunately, there are times when this could end up costing you more than your current high interest account.

For example: if you transfer your balances over to a 0% credit card that offers this low rate for six months, but reverts to a really high purchase interest rate after this expires, you risk ending up right back where you started unless you can repay the entire amount you transfer.

Assume you transfer $3,000 and you know the low rate will last for only six months. You would need to repay $500 per month in order to repay the entire balance. If you can’t do this and you end up with a balance still outstanding, this will start attracting the higher purchase interest rate right away.

On top of this, if you use your balance transfer credit card to pay for a purchase, you’ll find that the amount you spent will immediately begin attracting the higher rate as well.

Your credit card provider will allocate your repayments so that your balance transfer amount gets repaid first. This means the money you spent on that purchase keeps attracting a high interest rate until you repay your transfer amount first.

The key to really benefiting from a low interest credit card is to do some homework before you make the change. Understand how your chosen account works and know what could affect any positive effects you’re aiming for. Finally, be sure you only use your credit card for the purpose in which it was originally intended.

This article was written by Timothy Ng. You can read more of his work at where he has a number of comprehensive guides to all types of low interest credit cards.

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