Types of Low Interest Rate Credit Cards
Whether you’re trying to establish credit, or you want to make a large purchase, using a credit card is a great solution. But with so many credit cards out there with various features and benefits, how are you supposed to choose? Whether you’ve had a credit card for years or you’re just starting out on the journey, you may feel confused about how to find the best credit card for your needs. When examining the features of different cards, the goal is to find low interest rate credit cards. This will limit the amount of interest you’ll pay overtime, which can save you thousands in the long run. In terms of credit card rates, there are three options to consider:
- Fixed low rate
- Adjustable low rate
- Promotional rates
Now you may be thinking, what are the differences between the three? There are many factors that go into which credit card and which credit card provider you should choose, but it really comes down to your situation and needs. In this post, we’ll dive into the pros and cons of the three rate options mentioned above and describe how it may be very beneficial to utilize more than one credit card.
Low Interest Rate Credit Card Promotional Offers
If you’ve been browsing around for low interest rate credit cards, then chances are you’ve seen quite a few promotional offers. With so many credit card issuers competing for the same consumers, these companies offer various promotional deals to add more incentives for applying for their cards. While these deals might seem like very cost-effective benefits, there are some negatives you should consider. Keep reading to learn the pros and cons of these promotional offers.
Pros
An obvious pro for signing up for a credit card with a promotional rate is that it can save you money. The most standard promo offered involves a 0% introductory rate for a certain number of months. That means you won’t have to pay interest during that time, so you can spend as much as you want without having the need to fork up extra change. Some offers might also include low percentage interest rates after the 0% introductory period, which can add even more savings. Other offers might include airline miles, cashback on purchases or even discounts on certain products or services. Although these promotional offers can help you save a lot of money, there are some negatives to consider.
Cons
One reason that credit card companies continue to offer these introductory deals is that consumers tend to forget about their balance. When they open a new line of credit for example and have $10,000 to spend with 0% interest, many people spend quite a bit of that money. And when that introductory period is up, they either forget to pay the balance off or they don’t have the money to cover the charges. Additionally, using most of your line of credit negatively impacts your credit score even if you’re not paying interest on the balance. If you don’t spend more than your budget will allow or make sure to pay your balance off when the promotional period ends, then these cards may work for you. If you have a tendency to spend too much and are forgetful when paying a balance, then you might want to be hesitant before applying for these cards.
Fixed Low Interest Rate vs. Adjustable Low Interest Rate
Although Fixed Rate Credit Cards are not as common as they once were, it is possible you may receive a promotional offer for one. Fixed low interest rate and adjustable low interest rate credit cards are a few other options to consider. However, like cards with promotional offers, there are some pros and cons to understand. Below we’ll discuss how these different rate structures can benefit you, and what to watch out for.
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Fixed Rate
When you choose a credit card with a fixed rate, that means the interest rate never changes for the life of the card. This can be very beneficial for the consumer, but it’s smart to be cautious. Here are some pros and cons to consider:
Pros
Obviously, the #1 pro of a fixed rate card is that the interest rate never changes. So, if your income changes or you miss a payment, your rate won’t be affected with a fixed rate credit card. If you have good credit and secure a low rate on your fixed rate credit card you’ll be able to keep that low interest rate the entire time you have that card.
Cons
While it may give you peace of mind to have a credit card with a fixed rate, those with poor credit may feel stuck with their initial higher interest rate. This is certainly not the case! Once you have improved your credit score by making payments on time and paying off debt, you can request an interest rate reduction by calling your credit card company.
Adjustable Rate
When you choose a credit card with an adjustable rate, that means the rate can fluctuate over time. This can be a risky option because sometimes you have no control over the rate of your card. However, if you're responsible for making payments and taking the necessary steps to lower your rate, then choosing a credit card with an adjustable rate could work in your favor.
Why You Should Have More than One Low Interest Rate Credit Card
If you have enough credit to get one credit card, then you should think about having a few more. You’ve probably heard the opposite of this advice, but there are many reasons why having more than one credit card is a good idea. For savvy, responsible card holders, having multiple credit cards is a great way to boost your credit score and take advantage of a number of other useful benefits. Here are some reasons why having two to three credit cards is a great idea:
Allows You to Use Them Anywhere
While most places accept all forms of credit cards it's important to note that some places don’t accept every form of payment. If you have multiple credit cards, that opens up your options in order to use a card no matter what purchase you’re making. Typically, a credit card issued by a local credit union will be accepted almost everywhere a credit card is accepted, while major brand cards such as Discover may not be.
You Can Rack Up the Rewards
With hundreds of credit cards offering a wide range of deals and rewards, having two to three credit cards can give you the opportunity for maximum savings. You may choose to take advantage of free airline miles or cash back on higher rate or promotional credit cards and then transfer your balance to a lower interest rate card, preferably a fixed rate credit card. This tactic is sometimes referred to as “stacking” your credit cards. Use the ones that offer the best rewards when making a purchase, and then use the ones with the lowest interest rate to pay off your balance.
Spreads Out Your Debt
Another benefit of having multiple credit cards is that it can help spread out your debt. Instead of having a large balance on one card, using multiple credit cards can help you keep lower balances in multiple accounts – which can do less harm to your credit score. The more credit consumers use on their credit cards each month, the worse it can be for their credit scores. Experts say that you should only use about 10-30% of your available credit. Lower balances on multiple cards can help keep your credit score healthy.
Do What's Right for Your Finances!
While many people think that credit cards are a sure way to rack up debt, using them effectively can help to establish credit, boost that credit score, and give you the opportunity to take advantage of rewards and other benefits. But before you sign up for a credit card, be sure to do the research to find the best card to suit your specific needs. Some credit card strategies, such as “stacking” cards can be extremely beneficial for the financially savvy, and detrimental for those starting out or trying to repair credit. What’s most important is that you’re honest with yourself about your ability to manage lines of credit and that you’re using credit cards correctly, no matter which interest rate type you decide is best for you.
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For tips to help you find the best low interest rate credit cards, review our “The Best Credit Cards Always Offer These Hidden Benefits" complete guide!”
