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Carrying a credit card balance is never optimal, but sometimes it’s a necessity. If you do have to go that route, it’s best to carry the balance on a low interest credit card. A low interest credit card is one whose annual percentage rate, or APR, is lower than average, saving users money on finance charges they might accrue if they don’t pay their balance off in full every month.
To qualify for a low interest credit card, you generally must have good to excellent credit.
|A low interest credit card might be right for you if:|
|You have good or excellent credit scores|
|You often carry a balance on your credit card|
|You’re looking to transfer a balance from a higher interest credit card|
|A low interest credit card might NOT be a fit for you if:|
|You have lower credit scores (you may not get approved)|
|You don’t carry a balance and you want to earn rewards.|
The current average variable interest rate on all credit cards (as of 3/8/18) is 16.84%.
A low interest card shaves several points off that rate and possibly even offers a 0% APR for a limited duration. For example, the Barclaycard RingTM Mastercard®, comes with a variable APR of 10.24%
[Editor’s Note: this and other cards are offered in the low interest credit card marketplace at Experian.]
A Slightly Lower Rate Makes a Big Difference
Say you have a credit card balance of $2,000, and you only pay the minimum payment due of $35 each month. It would take you nine years and nine months to fully pay off the balance, and you would have accrued $2,066.21 in interest over that time period if your credit card’s APR was the current average of 16.84% (assuming it stayed that rate during the whole payment period).
However, with a 10.24% APR and the same monthly minimum payment on your credit card, you could pay off the balance in six years and seven months, accruing $754.35 in finance charges along the way. A difference of 6.6 points in the interest rate means a nearly $1312 difference in accrued interest.
Introductory Interest Rates
While some cards have a low ongoing rate, other cards offer introductory interest rates that can be as low as 0% for a certain period of time, ranging anywhere from three to 24 months.
Any charges you make during that introductory period would not accrue any interest (as long as the introductory rate is 0%), though you are still required to make the monthly minimum payment if you want to avoid fees and a penalty rate increase.
If you pay off your charges before the introductory period is up, you will have avoided any interest charges altogether, which makes it sort of like an interest-free loan. However, once the introductory period is over, any balance you still carry will be subject to the card’s normal interest rate.
When considering a credit card with an introductory rate, you should find out what the introductory rate is, how long it applies to your purchases and balances, and what it will jump to once the introductory period is over. After the introductory period, most cards will switch to a variable purchase rate.
Balance Transfer Cards
If you already carry debt on a credit card with a high interest rate, you might consider making a balance transfer to a credit card that offers a lower rate. When you make a balance transfer, you are simply moving debt from one credit card to another that offers a lower interest rate so that you can pay down your debt more quickly.
You typically do have to pay a balance-transfer fee, which is usually 3% to 5% of the transfer amount, but some banks have waived this fee in recent years.
Balance transfer cards may come with an ongoing low rate, but many do offer an introductory rate as well. Some offers let you pay 0% on balance transfers for a temporary period, sometimes up to 24 months.
This is an excellent option if you are trying to pay down debt, but again, you generally have to possess good credit in order to qualify for such offers.
How to Choose a Low Interest Credit Card
Before shopping around for a low interest credit card, look up your credit scores and check your credit reports so you have a sense of where you stand. Most cards will tell you up front what type of credit is typically needed to qualify. If you don’t fall in the required range, you shouldn’t apply for such cards, because the hard inquiry on your credit report will bring down your credit scores slightly.
You should always compare interest rates on the cards you’re considering, but be sure to also factor in other features, such as if there is an annual fee on the card. You might sacrifice a slightly lower interest rate for a card that doesn’t charge an annual fee. (But do the math—if you’re planning to carry a big balance, even a small difference in interest rate could outweigh what you’d pay in terms of the annual fee.)
If you’re going for a balance transfer card, be sure to calculate the cost of the transfer fee when making your decision. And make sure you are clear on any introductory periods and how the rates will change after that intro period ends.
Questions To Ask When Considering Low Interest Credit Cards
1. What Credit Requirements Are There?
Find out what kind of credit is required to qualify for the card you’re thinking about. Some of the lowest interest rates are only available to consumers with the highest credit scores.
If your score is in a lower range, you don’t want to apply for a card that is unlikely to accept your application, because your credit scores will take a small hit when the bank pulls your credit file in order to review your application.
2. How Long Does Any Introductory Rate Last?
If the card offers an introductory rate, figure out how long the introductory period is and what the rate will jump to after the initial period. You should also look into what the penalty APR might be—that is, what the interest rate will climb to if you miss a payment.
Paying close attention to the details and researching options before applying for a credit card can help save you money and make sure you pick the right card for your needs.