When looking for a credit card with a low interest rate, you need to consider several factors to make sure you are getting a really great deal. What most people are unaware of is that low interest credit cards may not actually cost as much as they thought they would. In fact, these cheap credit cards can cost you more than you think.
Finance charge calculation
So, you think you've found a great credit card with a low interest rate, right? Okay, that may be true, but it may not be as cheap as you think. Be sure to read the fine print on credit cards and learn more about how finance charges are calculated. The traditional method of determining finance charges is the average daily balance method. This method is the best in terms of saving your money. However, the two-cycle average daily balance method is more expensive if you have a monthly balance on your card. And, since you are looking for a low-interest credit card, you will probably want to keep a balance.
With the Two Cycle Average Daily Balance method, finance charges are set twice rather than once during your billing cycle. Therefore, you are actually crediting the finance charges twice in your billing cycle. So, even if the APR is low, your finance charges are not due to you paying twice.
Note the Grace Period
The grace period is how long you have to pay the credit card loan amount before the finance charge increases. Therefore, the longer the grace period, the lower the finance charges you will have to pay. When looking for credit cards with low interest rates, find out how long your grace period is before you start making payments. Twenty day grace periods are common. So, if you find a credit card with a low interest rate that offers a longer or longer grace period, you have probably found a better card. If the grace period is less than that, continue your search until you find an acceptable grace period. Obviously, a low interest rate is not great for you if the finance charges start to rise as soon as you make a purchase!
Consider the annual fee
Some low interest rate credit cards include annual fees. This is one way to replace the low interest rate offered by a credit card company. For the most part, it is not worth it for the cardholder to pay the annual fee to get a low interest credit card. Do some more shopping and see if you can find some cheap credit cards with the same APR that does not include the annual fee. Chances are, you will find one that does not pay you to be a cardholder.
If you can not find a low interest rate credit card with the same low interest rate, you may want to take a closer look at the card that charges an annual fee. In this case, you should estimate the annual fee payment with your potential interest rate savings. If both the annual fee and interest rates are low enough, it may be worthwhile for you to apply for the card. Assess your spending habits honestly and how much money you can send to your credit card each month to pay off your debt. The last thing you want to do is give your money to the credit card company as an annual fee, unless it ultimately benefits you financially.
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