 By ASAP Credit Card - Copyright © 2008
The
best way to reduce the cost of credit cards is to lower your interest rate. Sometimes a lower rate is as easy as calling your current issuer and asking
for help. If you can't get your existing rate lowered, you might consider a new
low interest or 0% credit card instead. Even a small drop in your APR can have
a huge impact on how much you pay over time. Here's some examples:
Saving with a Low Rate:
Let's assume you've found a great low rate interest credit card. Your
old credit card has an interest rate of 14.99% - but the new offer is only 9.99%. Over the course of a year, you'll save 5% on interest. Here's how
it adds up:
Assume you have
a balance of $5,000 on your credit card:
OLD
CREDIT CARD:
$5,000 x 14.99% = $
749.50 in interest per year
LOW INTEREST
CREDIT CARD:
$5,000
x 9.99% = $ 499.50 in interest per year
With
a balance of $5000, you could save $250 with a low interest
credit card over the course of a year. If your balance was $10,000,
you could save twice as much! The extra money you save with a low interest credit
card could be used to pay down your existing credit card balances, or used to
make cash purchases and avoid creating even more credit card debt.
*
Try our Low Interest Savings
Calculator to see how much you could save with a lower rate!
Saving
with a 0% APR:
Another great money saving option
is a 0% APR credit card. They have become increasingly popular in recent years
- and for good reason! Not only can you avoid
interest charges on new purchases, but you can transfer your existing credit card
debt and pay 0% interest on the balance. Here's a simple example of how you could
save with a 0% APR:
Assume you have $5000
in existing credit card debt -or- you plan on making $5000 in purchases with your
new card:
REGULAR CREDIT CARD:
$5,000 x 10.99% = $ 549.50 in interest after 1st year
0%
APR CREDIT CARD: (12 months)
$5,000
x 0.00% = $ 0.00 in interest after 1st year
In this example, you
would save $549.50 in interest after the first year. If your balance was higher, you could save even
more! Use the extra money to paydown your existing debt more quickly or to avoid new purchases. Just keep in mind that after the intro period ends, interest charges
will start to accumulate and you'll have to pay for the money you borrowed. The
'free money' won't last forever -
so don't overspend and create a balance that
you can't afford.
0% APR vs. Low Interest:
Is it better to have a lower interest rate or a longer 0% APR? It's
not always easy to determine the best option. Here's another example to help you decide which is better:
Assume you have $5000 in existing credit card debt.
You can either choose a low APR of 9.99%, or choose a 0% APR for 6 months with
an ongoing rate of 12.99%:
LOW INTEREST
CREDIT CARD:
$5,000 x 9.99% = $ 499.50 in interest per year
0%
APR CREDIT CARD: (6 months)
$5,000 x 0.00% = $ 0.00 in interest for
6 months
$5,000 x 12.99% / 2 = $ 324.75 in interest for 6 months
In
this situation, you would save $174.75 with
a 0% credit card. Even though the introductory period was only 6 months -
and the ongoing APR was higher, you'd still save more with a 0% APR credit card
over the first year. But keep in mind, after
the first year ends you'll end up paying more interest with the higher
APR. So unless you plan on paying the balance off completely or switching to another 0% APR offer before the intro period ends, the lower interest rate might be better.
Best of Both Worlds...
Obviously,
the best option is to take advantage of both types of offers. Look for a 0% APR
credit card with the longest introductory period and the lowest interest rate
after the intro period ends. This way, you can avoid interest charges for as long
as possible and save the most money on interest over time. Luckily, most low
APR credit cards on our site have a 0% APR as well.
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See a complete list of low interest or 0% APR credit cards >
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