How to Use a Low Interest Rate Credit Card Effectively |
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A credit card can be a very helpful and effective tool. But at the same time, it can be a very dangerous one as well. You need to have control over your spending habits when you use a credit card. You might end up purchasing things that you never wanted, just because you think that you can pay off the money within the grace period. But when you care not able to pay it off, the debt starts to mount. This is when the interest comes into play. Most credit cards have a high rate of interest. So when people actually start to pay off the debts, they do not realize that they are simply paying the interest while the principal amount remains untouched and it mounts. A low interest credit card can be helpful in situations like these. Pay down the balance A low interest credit card is beneficial in many ways. It allows the person to start paying the actual balance every month instead of the interest alone. Credit card companies use the fees and the interest rates to make money. So when the interest rate is low, they have only one way to make money and that is via the fees. So, low interest rate cards usually have high annual fees. When you compare the amount, you feel that the amount is higher or more or less equal to what you would have paid in a high interest rate credit card. So one thing that you need to keep in mind while you choose a low interest credit card is the annual fee or any other fee that the company charges. Credit Ratings and Transfer of balance The interest rate that you qualify for depends on your credit ratings. If you have an excellent credit rating, then you may very well qualify for a rate of interest as less as 7%. Most credit card companies offer interest rates of around 10 to 20% on low interest credit cards. A zero percentage interest rate is also available for the first 12 months or so provided you transfer your existing balance from other credit cards to this low interest card. However, a one time administration fee may be charged for this service. This fee is usually 2 to 3% of the amount that you wish to transfer. However, you should pay off this fee as it is worth it. You will save up on the interest that you would otherwise have to pay for as long as 6 to 8 months. Post Transfer Handling Once you transfer all the balance to the low interest credit card, then you have to ensure that you do not incur any major charges on this card. Try to cut down on unnecessary expenses and focus on paying off the debts first. This is recommended but not compulsory. You may continue to pay off the debts and make purchases simultaneously but you will find it more difficult to pay it off that way. Manage your finance effectively You need to manage your finances effectively. This is very important to ensure that you pay your debts regularly and in time. A delay in payment can incur extra charges that might seem to be atrocious. Beware of low introductory rates Some credit card companies advertise their card as a low interest rate card. But the low interest rates are only introductory and last just for a few months. After a few months time, the rates go much higher than most other credit cards and you will get the shock of your life. Beware of such scam artists. |
