Are Low Interest Credit Cards Worth Using?

Certainly, the title is an overstatement on both sides. Credit cards are neither your redemption nor a destroyer. They are a tool, and how you use it is up to you.

It can be used for the purpose of convenience, for online shopping and the dozen other enjoyments for which it was designed. Or, it can become a means of growing your debt to meaningless levels and resulting to painful amounts of pointless interest every month.

Many who let credit card debt get unmanageable see debt consolidation as the exit. They are frequently presented with a great deal of offers to lessen their credit card debt by merging all their debt onto one credit card.

But those offers, even if they normally advertise ‘lower interest rates’ should be viewed with a questioning eye. Those lower interest rates are more often than not only available to a chosen few with fine credit ratings. That doesn’t apply to the usual person who is under pressure to get over a history of extreme debt and find a way out.

But, they can recommend a means to solve the problem over the long-run. You may, actually be able to qualify – the only way to be certain is to apply. But even if you’re accepted, there are a number of key items to remember when considering this solution.

Very seldom will such credit card extend lowering the actual amount of principal outstanding. As a consequence, you have exactly the same amount of debt on the day you get the new card. Over the long term you will essentially pay more.

A lower interest rate can, definitely, be an advantage. But lowering the rate doesn’t at all times mean lowering the total amount. If you pay 8% on a debt of $10,000 lets say, five years you will pay extra than paying 10% on $10,000 for two years.

The rationale is the compounding effect of interest. The total amount of interest paid in the first case is $2,165.60. The net interest rate overall is 21.656% when computed as the percentage paid beyond the principal. In the second case, you pay only $1,074.80, with a net interest rate of 10.748%.

Keep in mind the 8% vs. 10% are the APR in each case – the yearly percentage rate, this is the rate for a one year period – not the total percentage of interest.

Of course, the benefit is that in the case of 8% over five years, you pay only $202.76 every month; in the second scenario you pay $461.45 per month. Some will find the former payment easier to handle than the latter. You may be able to find a few middle grounds. Calculators available on the Internet will assist you run through the different assumptions that could guide you in picking out the one that’s best for you.