If you've got a big purchase planned this year - a big screen television, family room furniture, or even a fabulous vacation - low interest credit cards can be one way to make paying for that purchase less painful. When you put the charges on a card with no interest or very low interest, you're giving yourself a little breathing room, time to pay off your splurge over several months without worrying about getting even deeper in the hole because of the interest you'll have to pay.
Before you apply for a low-interest or no-interest credit card, however, make sure that you have good answers to these questions:
Why do I want this low-interest credit card?
Is it for a one-time purchase? A card you'll use every day? Are you planning to replace another card? You shouldn't apply for any credit card on an impulse. No matter how good the offer, you need a clear idea of why you want and need a low-interest credit card before you fill out an application for one.
Can I afford another credit card?
Even if you have a good reason for getting a credit card, you may not be able to really afford one.
Are you an impulse spender who is already having trouble making payments on your current credit cards? In this case, no matter how low the interest rate, it's not a good idea to apply for even more credit. Having that new card in your wallet - especially when you know you won't have to pay much interest - is likely to tempt you to overspend even more.
If you really want to take advantage of the savings a low interest card could provide, consider applying for a low balance transfer card that would allow you to pay off your current debt at little or no interest. Cut up another card, though, so you won't be tempted to use that as well.
But don't apply for too many cards at once and don't cancel a credit card. Both actions can send up warning signals to the credit rating companies and actually hurt your credit score.
Will I qualify for this type of credit card?
Your credit rating will have to be good to excellent for the credit card companies to approve you for this type of card.
How long is the low or no-interest rate good for?
If you check on the CreditCardXPO.com site, you'll see that the length of time that the low interest rate applies varies according to the credit card issuer. It can be as short as six months and as long as 18 months.
For some cards, the low interest period is different for balance transfers than it is for new purchases. You could be in for an unpleasant surprise - and much higher minimum monthly payments - if you find out that your balance transfer interest rate is zero for 12 months but that it goes up to the regular credit card rate for new purchases after just six months.
Is there an annual fee?
A quick check of the low-interest cards on the CreditCardXPO.com site shows that none of them have an annual fee, but if you're considering an offer from someplace else (like an offer you get in the mail) make sure that there's no annual fee that kicks in later.
What's the APR (annual percentage rate) on the card?
The interest rate you'll pay on your card balance once the introductory period is over will vary according to your credit rating. CreditCardXPO.com is showing cards with 10.9 percent APR on the low end and 22.9 percent on the high end.
If you plan on paying off your purchases before the zero balance rate period has ended, the differences in interest rates won't affect you. If you're going to be carrying a large balance over several months, however, an increase of even one or two percentage points could mean that you'll pay significantly more in interest charges over time. In this situation, you should look for the card that advertises the lowest maximum rate so that you can put more of your money towards paying off your debt.
(The Federal Trade Commission offers a convenient credit card repayment calculator on its website, so you can compare how long it will take you to pay off your credit card balance at different interest rates.)
A no or low-interest credit card can offer some real financial benefits by saving you money. Just be sure to do your homework before you go out and buy that new television or take that fabulous trip.