| Credit card balances are rising faster than | | | | fixed rate card is the rate usually doesn't increase |
| consumers can pay them off. And with a high | | | | as often as a variable rate card in a rising rate |
| interest rate card it can be difficult to even make | | | | environment (this can work against you if rates |
| a dent in debt. According to Consumer Action, a | | | | are falling). |
| non-profit, membership-based organization, a | | | | Is the low rate for purchases only? |
| March 2004 survey revealed that only 39% of | | | | Most of the time a low APR applies to purchases, |
| the people said they pay their credit card balance | | | | but not cash advances. The cash advance APR is |
| in full each month. So if you are like 61% of | | | | generally much higher. If you do end up taking a |
| everyone surveyed and carry a balance from | | | | cash advance on a low rate card you need to be |
| month to month, then your number one priority | | | | aware that issuers normally apply payments to |
| for a credit card should be a low interest rate. | | | | thebalance with the lowest APR--so your cash |
| What is considered a low interest rate | | | | advance balance will keep earning interest (usually |
| According to Linda Sherry, editorial director and | | | | at a much higher rate) until your purchase balance |
| spokesperson for Consumer Action, anything | | | | is paid off. However, a few cards do come with a |
| below 10% is an attractive rate in today's market. | | | | low cash advance APR, so make sure you read all |
| Look at the Savings | | | | the fine print. |
| Are the savings really all that much with a lowrate | | | | Fees |
| credit card? Here's an example to show you just | | | | Annual fees are pretty much a thing of the past. |
| how much you will save. | | | | The one notable exception is credit cards that |
| Let's say you have a $2500 balance on your | | | | have very low ongoing rates, usually defined as |
| creditcard, you make the minimum 2.5% | | | | being within 2 points of Prime. If you do come |
| payment, and you don't add any new charges to | | | | across a card offer that has an annual fee and |
| the card. With an 18% APR (annual percentage | | | | rate within 2 points or so of Prime, then use our |
| rate) it would take you 20.3 years to pay the | | | | onlinecalculators to compare the cost savings to a |
| card off at thecost of $3365.51 in interest alone. | | | | card without an annual fee and a little higher APR. |
| If you are able to lower that interest rate to | | | | If you plan to transfer a balance to a low rate |
| theaverage standard, fixed rate of 12.99%* you | | | | card, then determine how much a fee you will |
| will reduce the time it takes to pay off the debt | | | | pay before initiating the transfer. Detweiler says a |
| to 15.2 years and your total interest will be | | | | cap of $25 on balance transfer fees is generally |
| $1732.95--a 48.5% savings over the 18% APR. | | | | okay, but if they charge a fee of 3-4% with no |
| But if you can qualify for a 9% APR, yourdebt will | | | | cap it's probably not worthwhile. Doing a few |
| be paid off in 12.6 years with a total of $977.48 in | | | | calculations will helpyou determine if the savings |
| interest--a whopping 71% savings over the 18% | | | | are there. |
| card. And if you commit to paying the first | | | | Using a Low Rate Card to Your Advantage |
| month's minimum payment of $62.50 each month | | | | The point of using a low rate credit card is to |
| until the entire balance is paid off, then you will | | | | save you money if you carry a balance month to |
| shave off another 8.6 years and another $494.01 | | | | month. Here are some tips to make sure you are |
| in interest. | | | | maximizing its usefulness. |
| Who can get the lowest rates | | | | Make your Payments Early |
| In order to get the lowest advertised you will | | | | If your credit card issuer uses the average daily |
| need a good credit rating. While most issuers have | | | | balance method to calculate interest (see glossary |
| their own criteria for a good credit rating, Sherry | | | | below), then you will benefit by making payments |
| says that in general a FICO score of | | | | before the due date because it reduces the |
| 675+ is good and 750+ is excellent. If you are in | | | | average daily balance your monthly interest is |
| a situation where you need to raise your current | | | | based on. |
| score, please read our article is a Credit Score | | | | Manage your Credit Well |
| Calculated and How Can I Improve My | | | | With a low rate credit card you need to make |
| Credit Score? | | | | sure your payments are always on time, you |
| Where you Can Find the Lowest Rates | | | | never exceed the credit limit, and that your |
| If you do have a good to excellent credit rating, | | | | payment will be honored by your bank, otherwise |
| then according to Gerri Detweiler, founder of and | | | | you will end up paying the default, or penalty, |
| author of The Ultimate Credit Handbook, if you | | | | interest rate which is significantly higher than the |
| are paying more than 10-12% you need to start | | | | normal purchase APR. |
| searching for a lower rate card and there are | | | | Also, don't max out the limit (i.e. carry a balance |
| several different avenues of approach. | | | | that is close to your credit limit) on your new low |
| Read Your Mail | | | | rate card because that will adversely affect your |
| Often times the best offers come right to your | | | | credit rating; and if your credit rating goes down, |
| mailbox. But you need to read through the offer | | | | many issuers have the right to raise your APR. |
| very carefully to determine if it is an introductory | | | | Detweiler says to use no more than 50% of your |
| rate or a long-term rate (ongoing). Also, Sherry | | | | credit limit on any given card. |
| says you need to look for the words "you | | | | In addition, defaults on any other credit accounts |
| arepre-approved" as opposed to "you are invited | | | | can affect your low rate credit card. Most credit |
| to apply." If it is an invitation only, you may not | | | | card issuers have a universal default clause in their |
| qualify for the rate advertised, and you won't | | | | terms and conditionsmeaning that if you default |
| know until after you apply. You should also be | | | | with any other creditor (not just another credit |
| aware that you may not get the rate advertised | | | | card company) they reserve the right to raise |
| in a pre-approved offer. In fact, you may even | | | | your APR to 20+% in some cases -- read our |
| be declined for the card. Please be aware that | | | | Universal |
| almost all of these mail offers are marketing | | | | Default article for more information. Sherry says |
| schemes rather than true pre-approved offers. | | | | they have the right to pull your credit score and |
| Learn to Negotiate | | | | review your account. If they find any reason to |
| Mail offers and other low rate credit cards you | | | | raise your rate they will--as Bilker says, they are |
| carry can come in handy as a negotiating tool | | | | just waiting for the opportunity to do so. And |
| with your current card issuer. Scott Bilker, creator | | | | even though the Truth in Lending Act requires |
| of and author of Talk Your Way out of Credit | | | | they give you notice of an increased rate it |
| Card Debt,suggests calling your issuer and letting | | | | doesn't have to be in advance. So make sure you |
| them know you have better offers elsewhere | | | | check your statement every month for any |
| and that you are consideringswitching to another | | | | changes in the rates. |
| card if they won't lower your rate. | | | | Tips for the Savvy Consumer |
| Don't be afraid to take back control...in today's | | | | - Consider consolidating higher rate credit cards to |
| saturated market, credit card issuers are looking | | | | your lower rate credit cards. It's important to |
| to hang onto customers. If you want to know | | | | keep in mind, however, that credit card |
| exactly what to say to a credit card customer | | | | companies usually apply payments to the balance |
| service rep., check out Bilker's book which | | | | with the lowest APR. This means if your low rate |
| contains transcripts from actual telephone | | | | credit card has an introductory 0% balance |
| conversations with reps. | | | | transfer APR and you are carrying a monthly |
| Local Banks and Credit Unions | | | | balance on purchases, then your payments will |
| When shopping for a low rate credit card, looking | | | | reduce the 0% balance transfer first while you |
| to a local bank or credit union may be a good | | | | continue paying interest on purchases--the |
| option. In addition to a good rate you may find | | | | resulting APR is called your effective rate and it is |
| the customer service more personal and | | | | normally much higher than the balance transfer |
| appealing. But beware of banks that offer a rate | | | | APR. The effective APR should be indicated on |
| significantly lower than the big banks or below the | | | | your monthly statement. |
| , especially if you know your credit is not good | | | | - Detweiler says if you really want to save as |
| enough to qualify. Another thing to consider is that | | | | much money as possible consider using a reward |
| introductory rate offers from local banks and | | | | card for a big-ticket item. After you earn the |
| credit unions are not generally as aggressive as | | | | reward, immediately transfer the balance to a low |
| introductory offers from larger banks. | | | | rate credit card. This technique requires |
| Associations | | | | self-discpline and attention to detail. |
| Sherry says it's a good idea to investigate any | | | | Important Terms to Know |
| credit card offers that may come through | | | | Credit card issuers use their own language, which |
| associations you are part of such as alumni | | | | can be confusing. Below is a table of some |
| groups. These large groups often have more | | | | important terms you need tounderstand as you |
| muscle to negotiate special terms for their | | | | shop for the lowest rate credit card. |
| members. For example, for their members, AARP | | | | Purchase APR Annual Percentage Rate charged |
| got the binding arbitration clause, which has come | | | | when you carry a balance month to month on |
| under scrutiny recently by consumer advocates, | | | | any purchases made with your card. |
| left out off the terms and conditions of the | | | | Balance Transfer APR: APR for balance transfers, |
| AARP credit card. | | | | typically different than the purchase APR |
| Online | | | | Default/Penalty APR: APR charged if you default |
| Finally, offers detailed comparisons of the lowest | | | | on the account. For example, making a late |
| rate cards currently available. Browse our | | | | payment, exceeding your credit limit, or bank not |
| Card Reports section and conveniently apply online | | | | honoring your payment. |
| to start reducing your interest charges. | | | | Variable Rate: Interest rate that changes |
| So Many Choices...Some things to Consider | | | | according to the index (i.e. Prime and LIBOR) it is |
| Variable vs. Fixed Rate Credit Cards | | | | tied to. |
| Most of the low rate credit cards offered today | | | | Fixed Rate: Interest rate that does not change. |
| are variable rate cards. This means the APR is | | | | However, in the credit card world there is no such |
| attached to an index such as Prime or LIBOR | | | | thing as a truly fixed rate as a change in the |
| (London Inter Bank Offered Rate) and changes | | | | terms and conditions can change a rate at any |
| according to changes in the index. The credit card | | | | time. |
| terms and conditions will say something like "Prime | | | | Prime: The lowest interest rate banks charge their |
| + 4%." So if Prime is 6%, then your interest rate | | | | most credit worthy customers, usually |
| is 10%. | | | | corporations. A common index used for variable |
| And although not currently common, it is still good | | | | rate credit cards. |
| to be aware that issuers can apply a floor, or | | | | LIBOR: London Inter-bank Offered Rate, the |
| minimum, to the rate. For example, if the terms | | | | interest rate banks borrow money from other |
| are Prime + 4% with a floor of 10% and Prime | | | | banks in the London wholesale money market, |
| drops to 5% you would get a 10% APR rather | | | | usually lower than Prime. Another index used for |
| than the 9%. According to Sherry this was more | | | | variable rate credit cards. |
| common 3 years ago when interest rates really | | | | Monthly periodic rate: Monthly interest rate. APR |
| dropped, but became a less frequent practice as | | | | divided by 12 (number of months in a year). |
| consumers started pressuring issuers to ban | | | | Average Daily Balance: Daily totals of charges and |
| floors. | | | | payments divided by the number of days in the |
| Even with low rate cards advertised as having | | | | billing cycle. |
| fixed rates, keep in mind credit card issuers | | | | Average Daily Balance Method: Method for |
| reserve the right to change the terms and | | | | calculating interest--average daily balance multiplied |
| conditions, including the APR, of the cardfor | | | | by the monthly periodic rate |
| virtually any reason at any time. If changes do | | | | Two-Cycle Billing Method: Method for calculating |
| affect your fixed APR card, your issuer is | | | | interest based on the sum of the average daily |
| normally required to give you 15 days written | | | | balance for the previous and current billing cycle. |
| notice; so it's very important to open all your mail | | | | Amount Due: Refers to the minimum amount due |
| because if you happen to throw out the notice, | | | | (usually around 2-4% of the entire balance) |
| then you will forfeit any right you may be given | | | | Finance Charge: Interest charge on outstanding |
| to opt-out of the rate increase. And Sherry says | | | | credit card balances. |
| once you make a purchase underthe new rate | | | | FICO Score: Fair Isaac & Co., the company |
| terms, even if you didn't read the notice, you | | | | that develops credit scores (aka FICO scores) |
| have agreed to accept the new terms and | | | | used by 75% of mortgage lenders and many |
| conditions. | | | | credit card issuers. |
| Credit card issuers can even change a fixed rate | | | | With a little bit of knowledge beforehand you will |
| card to a variable card and vice versa with little | | | | be able to shop for the best low rate credit card |
| notice. Fixed rates are rarely fixed forever. In the | | | | for your needs. Investing a little bit of time doing |
| credit card world | | | | so could save you 1000s of dollars and will |
| Bilker defines forever as the time it takes to pay | | | | definitely be time well spent! |
| something off. :0) The only real advantage of a | | | | |