Anyone who’s had credit card debt knows that it can escalate quickly. The reason your credit card debt seems to snowball is because of the interest, which can add up to create even more debt. That’s why low interest rate credit cards help keep costs down.
Interest costs can have a very damaging compounding effect. The way it works is that when you have credit card debt each month, you owe interest. That cost is then added to your total debt. Then, the next time interest is calculated, it is based on that higher amount and your interest charge is higher.
That’s why credit card debt can suddenly feel so suffocating all of a sudden. It’s a very difficult cycle to break, especially for people who have tight finances.
Why Are Low Interest Rate Credit Cards so Great?
If you had $10,000 in debt, you might imagine that if you paid $250 per month you could pay down your debt in 40 months, or about 3 and half years. But, with interest, you’ll be paying much longer than that, especially with credit cards.
If you’re shopping for a credit card, an APR is an important factor to consider. An APR is the rate you pay for a year on your debt. So, if your APR was, say 24%, you would pay 2% per month.
Credit cards have notoriously higher interest rates than most other forms of credit lines or loans. They often range in an average of about 15% to 22% APR. Savvy people can often find ongoing APRS below that, which are consider low interest rate credit cards.
If you had a 22% APR on that $10,000 in credit card debt, you would be paying your debt for more than 6 years, not 3.5 years. Worse still? By the time you pay back that amount with interest, you will have paid an extra $8,191 — on top of the original $10,000. Basically, you will be paying back nearly double.
Think about how destructive that is to your finances! Imagine if instead of losing $8,191, you put your money to work for you with wise investments and actually earned money.
Here is another example in more detail. In this case, the card holder’s APR is 22% and they carry a $4,000 balance:
So, if you carry debt, simply having a credit card with a lower APR can save you hundreds or thousands of dollars.
(In an illustrated example further down below, you can see how making more than the minimum payment can greatly help with reducing the total you pay on your credit card balance.)
Is a Low Interest Rate Credit Card Right for You?
However, keep in mind that it’s not an ideal strategy to open a new credit card simply because it has a lower APR than your current credit card. That’s because each time you open a new credit card, your credit score can take a hit. Lenders view someone who is looking for a credit line as potentially riskier, and so applying for new credit is a bit of a red flag.
One good strategy to get a lower interest rate may be to simply ask your credit card company for one. That’s no guarantee they will give you one, but they might review your account and lower your rate, saving you money.
In addition, if you open a new credit card simply for the lower interest rate, you may be extending your credit line. That seems like a good thing, but for some people it’s not.
People who are carrying credit card debt may view a new credit card as a way to keep spending. Of course, this will only make a debt problem worse. Know your spending habits before your open new lines of credit.
You need to consider several factors when you’re deciding whether to open a new credit card, not just the interest rate. Rewards, perks and other terms are also important factors to consider.
Which Credit Card has the Best Interest Rate?
Rates vary not only from credit card to credit card, but from person to person. So, one credit card may offer different rates to different people. It all depends on your qualifications, namely your credit score and payment history.
Some credit card do tend to offer lower rates than others, however.
8 Best Low Interest Rate Credit Cards
**Most of these low interest rate credit cards have 0% introductory periods of varying terms
- Discover it Cash Back (11.99% to 22.99%)
- Discover it Chrome (11.99% to 22.99%)
- The Amex EveryDay Card by American Express (12.99% to 23.99%)
- BlueCash EveryDay Card by American Express (12.99% to 23.99%)
- CitiDiamond Preferred Card (13.74% to 23.74%)
- Citi Double Cash Card (13.99% to 23.99%)
- Chase Freedom Unlimited (14.99% to 23.74%)
- Wells Fargo Platinum Card (15.49% to 24.99%)
How Do I Get a Low Interest Rate Credit Card?
The process of applying for a low interest credit card is the same as for other credit cards. It varies from company to company, but you can typically complete an application and get approved online within a few minutes.
If a credit card companies offers a pre-qualification, you might want to consider getting pre-qualified first. Your credit score is not impacted by pre-qualifications and you can avoid a ding to your credit if you do not meet pre-qualifications standards.
Getting a low interest credit card depends on your creditworthiness. If you have a poor credit score or questionable credit history, you will likely only qualify for higher interest cards.
Credit issuers see people with lower credit scores as riskier, and less likely to pay back their debt or make their payments on time. So, they charge more to compensate for that risk.
Many credit card issuers have a standard APR range, giving better qualified borrowers better rates and less qualified borrowers higher interest rates.
How Do I Payoff Credit Card Debt?
You need to make at least the minimum payments on every credit card you have, while also meeting all your other monthly obligations. Then, with extra money, you can use one of two strategies – the avalanche method, paying down the credit card with the highest APR first, or the snowball method, paying down the credit card with the smallest balance first.
If you’re in the negative cycle of credit card debit, it’s important that you take steps immediately to get out of it. You do have the ability to reverse the cycle and improve your financial health for the long-term.
The most important step is to understand your spending habits. Do the math on where your money goes each month – how much goes to housing, utilities, food, entertainment and other expenses. It really helps people to see these numbers in black and white.
So, either create your own budget or download one of the many free budget planners available online. Once you understand your spending, identify where you can reduce how much you spend. Continue to revisit your budget, including spending and income, every month.
While it is important to set aside savings every month, it is also important to pay down your credit card debt as quickly as possible. Try to find the right balance between putting extra money toward your credit card balance and staying on track with your savings goals.
The more you can reduce your credit card balance, the faster you can break the cycle of escalating debt from interest costs.
Using Low Interest Rate Credit Cards
Once you have your monthly income and expenditures under control, consider applying for a credit card with lower interest to help you get out of credit card debt a bit faster.
With a lower interest rate, you can also save money in the total costs of interest over time. Calculate your potential savings and monthly payment with a lower interest credit card compared to your current credit card.
Keep in mind that your credit score may take a hit when you apply for a new line of credit, however the negative impact should be minimal if other factors, such as payment history, are strong.
What about the Best 0% APR Credit Cards?
Some credit cards offer an introductory period of 0% APR for a certain time period – up to nearly two years in some cases.
Just like a low interest credit card, these 0% APR credit cards can be really beneficial to many people in helping them get out of credit card debt. But if you don’t use them wisely, they can do more harm than good.
From our example above, recall that if you have $10,000 in credit card debt with a 22% APR, and you’re making $250 payments, you will pay $8,191 in interest over 73 months. If you use a 0% APR credit card for 15 months, continuing to make $250 payments, you will pay only $2,187 in interest over only 49 months.
You can see what a difference having 0% APR for just that introductory period can make.
The caveat is that you don’t continue spending. If you continue to use your credit card and rake up new purchases, you will dig yourself deeper in debt. The savings you make with a 0% APR credit card could evaporate with interest on new purchases if you’re not budgeting well.
5 Best 0% APR Credit Cards
** Some of these credit cards also offer lower standard APRs.
- Citi Simplicity Card
- Citi Double Cash Card
- Capital One Quicksilver Cash Rewards
- Chase Slate
- HSBC Gold Mastercard
The Bottom Line
Low interest credit cards are generally preferable to high interest credit cards, however each person’s situation is unique. Other factors to consider when you apply for a new credit card are perks, penalties, and credit line.