How to pay less interest on your credit cardAugust 28, 2012
Credit cards vary greatly, and there are many different types of credit cards serving different purposes. What unites all credit cards is the annual percentage rate (APR), and aside from all the rewards, bonuses, offers and incentives that credit cards provide, it is this interest rate which will primarily determine how much you end up having to pay back. Interest is the amount of money charged to borrow money; which accrues on the balances owing on your credit card.
This guide will explain how to achieve lower credit card interest rates by taking a look at introductory offers, rewards schemes, retail incentives and more.
If you have a credit card balance, you can pay less interest by transferring this balance to a new credit with an introductory 0% on transfers. Similar credit cards also offer 0% on purchases made. Both cases will be time-limited, usually varying between 6-18 months, after which the balance will be subject to the card’s normal APR.
Going for interest, not rewards
Personal credit cards usually come in two flavors – basic usage and rewards-based spending. While cards that offer rewards, such as points, can be of value to users who spend frequently with their credit cards, these rewards are often balanced by a higher interest rate. As such, if a lower interest rate is more important to you than rewards, you may achieve the lowest interest rate by choosing a credit card which does not have these offers.
Payments are as an important as APR in keeping interest at a minimum. For example, if you have a high balance, a low APR with minimum payments is less advantageous than a higher APR with larger payments. No matter the APR, you will incur less interest if you do your best to pay back what you owe. All credit cards have a grace period after each bill, and if you pay off the entire balance within this period, then you will incur no interest on the balance that builds in the next billing cycle.
Expenditure-based interest incentives
If you have a specific purchase in mind, then you can often receive repayment plans with little or no interest if you get a retail credit card. Most large retailers and department stores have their own consumer credit cards, offering specific repayment plans for when you make large purchases; these repayment plans may, in some cases, include no interest for up to 3 years.
People with no credit history or a poor credit history will unfortunately have limited options for taking out a credit card, though there are lenders which offer special credit-building credit cards. If you make at least the minimum payments on time each month, then over a certain interval period the APR will reduce. Some cards may go from about 30% and above right down to 15% over a period of 2/3 years, providing a great fast-track for those wanting to secure lower interest rates.
To find out how your credit card measures up, try our credit card navigator tool to compare your credit card against other cards.