Wednesday, September 10, 2008

Get The Most Out Of Your Low Interest Credit Card

Low interest credit cards are well suited for saving money by consolidating debt from higher interest sources utilizing balance transfers, and for making large purchases you cannot pay off in one billing cycle. There are a few options you have available to you other than simply running out and purchasing various products, and a couple of thoughts to keep in mind that can end up saving you a great deal of money in the long run. You have just applied and received your low interest credit card, and now you want to know what to do next.

Balance Transfers

Qualifying for a low APR can be difficult if you have any smudges on your credit report, so if you received one you probably have another credit card already. If this is so, and you are running a balance on the higher APR card, you now have the option to save some money by cutting the amount you have to pay in finance charges. If it is possible to pay off the balance in full, then by all means do it. This is always the best path to savings. If however you are sure the balance on the higher rate card will be with you for a while, then it might be best to transfer the debt onto your new low interest credit card.

The first step is to figure out which credit card you are using has the highest interest rate. If you have more than one, then carefully go through your bills and locate the APR for each card. If you can't find this information, call your creditor and ask them. They will be happy to give you any account information you need. While you have them on the phone, ask them how you can lower the APR on your current account. If there is a way to do it, the creditor just might be able to help you.

Once you know which APR is the highest, it is time to make the balance transfer to your new low interest credit card. There are several ways to go about this, but the safest route it to call the creditor you are transfer the debt too and have them walk you through the process. Since they are going to receive your new balance, you can be sure they will take all the time you need to get this done.

If you have enough room on your new card, it might be wise to transfer the balance from as many cards as you can onto this low interest credit card. Obviously you would need to use your best judgment here, but if you are going to pay finance charges you might as well minimize them. Remember, if the possibility exists to pay off a card entirely, then always do it. Transferring debt doesn't make it disappear; it just shifts it around to a more desirable location.

Once you are done transferring debt, do your absolute best to no longer use your higher APR cards. It won't help to charge up the other cards once your have your APR down to a manageable level, and you will be creating an even worse problem by having more than one card carrying a balance. Also remember that it is imperative that you are never late on a payment connected to your low interest credit card. If you default on your new card, regardless of the current balance, your APR can go through the roof. Some default APRs are in the neighborhood of 32%, or more. This negates any value your new low rate card was bringing you.

Pay more than the minimum payment every billing cycle when at all possible. Paying the minimum isn't helping you get out of debt, regardless of how low your APR is. The reason you are transferring your balance in the first place is to lower APR charges and become debt free, not extend the debt over a longer period.

Large Purchases

With its lower APR, you can minimize the finance charges you will be paying, thus reducing the overall debt you risk getting into over time. If however you must make a purchase that you are sure you cannot pay off in a single billing cycle, then you new low interest credit card will do some work for you. If you carry no balance, there is no finance fee (although other fees may apply).

You have heard this a few time here and there is good reason for this. Only carry a balance when you absolutely must.

If you make a large purchase and only pay the minimum, you will stay in debt much longer than you need to be, and the cost will be a great deal more than necessary. It is worth stating again that making the minimum payment is not going to get you where you want to be.


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