Low-Interest Credit Cards Save You Money

With Canadians deep in the recession, many of us are finding that once-manageable credit card balances are spiraling out of control. If you have fairly good credit but have hit a rough patch in these current economic times, you may want to consider a low-interest credit card.

How does a low-interest credit card help?

Carrying a balance on a standard credit card will rack up a lot in interest, making it harder for you to pay down the whole bill. With a low annual percentage rate (APR), you'll pay less in interest and can devote more money to paying off your balance.

Example: One bank's standard credit card may have a 19% APR while their low-interest credit card may have a 6% APR. If you have a balance of $2500 on your credit card, you’d pay $475 in interest over the course of a year with the 19% APR card. With the 6% APR card, on the other hand, you’d only pay $150 in yearly interest. The card with the low APR would save you $325!

Choosing a low APR

If you’re interested in a low APR, the next step is to decide what kind you want. Credit card companies may offer you a choice of either a fixed rate or variable rate APR. A fixed rate APR stays the same while a variable rate APR changes with the financial institution’s prime rate. Which one you should choose depends on how low interest rates are. Most fixed rate APRs vary between 9% and 14%. If interest rates are low, the variable APRs could be as little as 6%. 

Ask your bank and follow the news for information on prime rates. You don’t need to scour the business pages; the media will be quick to report whenever the Bank of Canada makes decisions that will affect the prime rates. If rates are low and expected to stay that way for a while, go for a variable APR. If interest rates are rising and you feel more comfortable with an APR that doesn't fluctuate, choose fixed. 

Annual fees on low-interest credit cards

Most banks charge an annual fee on their low-interest credit cards. Make sure the amount you save with a low APR outweighs the annual fee amount. Take a look at your credit card statements and see how much interest you've paid in the last year. If you pay $250 in interest and the annual fee for your chosen low interest credit card is only $25, you’ve got a great deal.

Different cards have different annual fees. "Generally, the higher the annual fee, the more benefits associated with the card," advises the Financial Consumer Agency of Canada, adding that a higher minimum income is required for most gold and platinum low-interest credit cards. Be aware that many low interest credit cards have fewer features (such as rental car or travel accident insurance) than standard credit cards.

Where to get a low interest credit card

Credit history is an important factor in obtaining a low-interest credit card. It's easier to get a credit card with a low APR if you have a strong credit score. If you’ve had good credit relationships in the past, turn to those financial institutions first. Your present bank or credit union may be willing to negotiate a lower interest rate with you on your current credit card. If not, ask for one of their low-interest credit cards instead. Or, look for a low-interest card from a different institution altogether. Just research thoroughly and apply for one card at a time to protect your credit score as much as possible!

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This post was written by Rita Marshall of Longbow Business Solutions. Rita enjoys turning complex topics into easy, helpful information for readers. She believes people who understand how personal finance works will make good choices and prosper.

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