Posted on 15 December 2009 by Rodney
By Leona Jones
If you’ve chosen a card because it has a low introductory or transfer rate, that’s great because it can lower your payments significantly. Nevertheless, there are a couple of traps to watch out for; stay tuned for when the low rate ends, because at that point your interest rate will balloon up. If you have a consistent on-time payment history, don’t be afraid to ask your card issuer if you can have a lower rate when the introductory period is over. The issuer won’t let you keep the original low rate, but may be willing to work with you. If it won’t, then move the balance over to a lower-interest card (if you have one).
If you make even one late payment on one of those low introductory (or transfer) rate cards, the issuer will instantly cancel that fabulous low rate and bump you up to a much higher rate for the life of the balance. Remember, low transfer rates come with a fee for making the transfer—equivalent to a percentage of the balance you’re transferring (this fee varies from card to card). Carefully compare cards to find the lowest transfer fee. Doing this can save you hundreds of dollars.
Most of us get several new credit card offers a month, but that doesn’t mean they’re the best offers. You’ll do better with a side-by-side comparison of interest rates and perks (such as airline miles) at Bankrate.com and CardWeb.com. Also check Consumer Reports (www.consumerreports.org) for the, “10 most consumer-friendly credit cards.” Skip the cards that charge annual fees. Credit cards are a very competitive market and you’ll always find one with the same low interest rate but without the fee. Cards that offer airline miles or “cash back” only work in the end if you’re able to pay the balance in full every month; these cards, I should add, never offer the lowest interest rates and the “added value” will probably be eaten up by the higher rate you’ll pay.
Even a few interest rate points will make a huge difference in paying off your balance. How much? Check, www.Bankrate.com, “What will it take to pay off my credit card?” calculator at www.bankrate.com/brm/calc/creditcardpay.asp. It lets you enter your credit card balance and interest rate, and then shows you how long it will take to pay off the debt. Play with different interest rates and you’ll see in sobering black and white what a difference a few points make. Going through all the credit card offers available to you isn’t as hard as it used to be, thanks in large part to the Internet. You now can shop for credit cards online and locate cards with the features you want at competitive interest rates.
Variable vs. Fixed Interest Rates
Credit cards generally come with either variable or fixed rates. Variable rate cards are tied to the prime lending rate, supplemented with some additional interest percentage, which varies from lender to lender. Each time the Federal Reserve raises or lowers the interest rates, so will your bank. If the prime lending rate is low, variable rate cards can be very competitive with fixed rate cards, which offer guaranteed interest rates that don’t fluctuate.
Variable rates are different from the “teaser” rates you see advertised all over the place. Teaser rates last for a limited time (usually three to six months), after which your card carries a higher interest rate. Since teaser rates don’t last, you shouldn’t really consider them in making a decision about credit cards. If you’re willing to take the time to change credit cards often enough to take advantage of a string of teaser rates then they may be worth it, otherwise, leave them alone.