Have you received an offer from a credit card company offering you a rate much lower than that of your current card? Although such offers can be a good deal, you should check out all the details before you fill out an application form. Here are some things to consider:
You may not really qualify for the low rate the credit card company advertises.
How's your credit rating? Are you behind on your bills? Have you maxed out most of your cards, or opened several new credit accounts in the past few months?
Read the fine print of the credit card offer and you'll discover that the low rate isn't guaranteed to everyone. Only those with really excellent credit ratings will get the lowest rate. If you know that your credit rating isn't where it should be, you may want to work on getting your debt down and improving your rating before you try to take advantage of a low interest credit card.
That low credit card rate may not apply to your new purchases.
Many of the offers you receive are balance transfer cards, so the low rate applies only to the balance that you move from a higher-paying card-and you may have to pay a transfer fee when you move your debt.
With some balance transfer cards, you'll pay a higher rate on new purchases, but you won't know how much until you are approved for the card.
The low interest rate may be in effect only for a certain limited time.
Some low interest credit cards will give you the initial low rate for a certain set period. Under the new credit card regulations adopted by the Federal Reserve in 2010, that introductory period has to last at least six months. (If you're more than 60 days late in paying your bill, however, your rate can also go up without notice.)
With these cards, the lower rates will apply only to purchases made within that set time period, so if you're planning to use the card for a major purchase (new furniture, new kitchen appliances, etc.) be sure to buy them before the higher interest rate kicks in.
(You can read more about the 2010 credit card regulations at the Federal Reserve Bank website.)
You could pay more in fees and other charges.
Credit card companies that require annual fees and/or application fees can charge you a total of up to 25 percent of your credit limit for those fees. (Late payment penalties are not included in this total, however.) That means if your credit limit is $1,000, you could pay up to $250 in fees!
Before you decide to apply for any low interest credit card, make sure that you understand what their fees are. If you're not careful, you could end up paying more in fees than you save in interest.
Low interest credit cards can offer a real opportunity to reduce your debt.
If you find a low interest credit card that will actually give you a good introductory rate and charge you low or no annual fees, you can look at it not as a reason to spend more money but as a way to put more of your hard-earned money towards reducing your debt. The less you pay in interest, the more you can put towards reducing the actual balance.
If you have the self-discipline to follow that strategy a low interest credit card can be a good financial move for you.
Bottom line on low interest credit cards? Read the fine print on all the agreement paperwork--and make sure that you understand it--before you apply.