Credit card interest can vary widely, depending on your credit score, any missed payments and the type of card you get. If you are looking for the lowest rate possible, an introductory APR can help on large purchases if you pay it off within the introductory period.
What is APR?
Your APR is the annual percentage rate. To keep it simple, if you owe $1,000 on a card with a 15% APR and only pay the minimum each month, in a year you can accumulate up to $150 in interest. The higher the APR, the more interest you will pay before you get the debt wiped out.
Cards With Benefits
If you want a card with points or bonus miles, you may have to pay an annual fee. According to the experts at SoFi, a balance transfer card may offer a lower than average credit card interest rate but is unlikely to come with bonus points or other perks.
Variable Vs. Fixed
Most credit cards come with a variable interest rate. Your credit rating will have an impact on this variable rate, but the lowest rate you will be able to get on most cards is at least 12%. Your utilization rate, payment history and total debt to income will cause the variable rates to creep up.
How to Successfully Benefit From Credit Card Use
Properly managing your credit card usage can lower this interest rate or boost your benefit by
- being prepared to pay the balance in full
- making at least the minimum payment in a timely fashion
- monitoring and making use of promotional offers
For example, if you need to make a large purchase such as a new refrigerator and you have the cash, the right credit card can also offer you bonus miles to reduce your vacation expenses next year. Be ready to shop around; if you’re not keen on flying, you can get a credit card that offers miles on Amtrak or points with national retailers.
Make Partial Payments
If you can pay off the entire balance each month, do so. This is the simplest way to avoid credit card interest altogether. If you can’t cover the entire balance, do make the largest payment possible as soon as you get the bill to lower your average daily balance.
If you owe $1,000 and can only pay $600, making a $500 payment early in the payment cycle will reduce the total interest you will pay on the debt over the course of the month. A card with 15% interest will charge a .5% interest each day, so early partial payments can speed up your efforts to wipe out the debt.
Use Promotional Rates
A 0% interest APR card can be beneficial if properly managed. A simple way to be sure you can pay off the debt in the proper time uses the following formula:
Total debt / (0% APR period – 1). If you owe $2,000 and have 12 months before the interest is applied, make 11 payments of $182. This will either pay it off in plenty of time, or you will have a month’s breathing room.
Managing your credit card happens at the checkout, not when the bill comes in. If you have no idea of what you owe on a card, don’t use it for “wants” until you’re aware of the balance.