Low APR Credit Cards
Options for low APR credit cards and low APR balance transfers are numerous and consumers should take advantage of the opportunity to lower their debt and also to position themselves for proper handling of personal finances. Information on a variety of these products is available already assembled in a clear and concise manner on the Internet. Often, this information is accompanied by informative articles about personal finance. Responsibility remains with the individual to put into practice the best ways of realizing financial goals. At the same time, beware of making the pursuit of riches the main goal of one's life, "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows." (I Timothy 6:10)
Nearly everyone has received offers to apply for credit cards. Fees, rewards, rebates, APR percentages -- it can be difficult to sort through this jungle of information and find the best card for one's situation. Fortunately, there are resources which can help weed out cards which would increase the stranglehold that debt has on many individuals. One resource is the credit card application itself. Federal law requires that companies making credit offers include certain information in a separate box on the application. This includes such important matters as the Annual Percentage Rate (APR), other APRs (for cash advances or balance transfers, etc.), grace period, method of computation of interest, annual fees and minimum finance charges. This disclosure box is a useful tool for sorting through advertisements and discovering the best low APR credit cards.
Take a closer look at the APR section of this disclosure box. Check to see if the interest percentage proclaimed in the advertisement is just an introductory rate, and find out what the normal interest rate on the card will be later. It may not be worth the trouble of switching if the rate will change soon. Frequent switching between low APR credit cards can have a negative impact upon one's credit report. Instead, try to find one which will offer the rate for at least a year. Check on the APR for cash advances and low APR balance transfers, too, if these are services that will be used. Find out the grace period, and the way that the company computes interest, as both will have an impact. Be sure to look right below the box as well for additional details about certain features.
Some cards charge a fee for merely being a card member. In fact, at times, offers are made to the card holder to become a member at a higher 'level', for example, a gold or platinum member. The only problem is that one will sometimes pay hundreds of dollars yearly for entering this exalted level, with little return for the 'privileged' status. Other cards claim to shield the consumer from damages above a certain level if the card is lost or stolen and used fraudulently. Since it is required by law that a customer not be responsible for more than the first fifty dollars charged in such situations, do not pay extra for insurance which gives one a 'protection' already available for free.
The Federal Reserve Board examines credit card companies twice a year and publishes the results on its website. This will yield a wider range of offers than the mailbox, for it includes such information as availability (national, state, select), pricing (fixed, variable, tiered), the item the company uses to establish its interest rates (prime rate, Treasury securities, variable) and special features offered on the card such as rebates, warranty extensions, and travel features. This helps narrow down the field of candidates to ones which best meet a customer's personal needs. The site also features a checklist which may be useful in making comparisons among low APR credit cards. Of course, once several candidates have been selected, it would be wise to verify the exact features of the card by contacting the company directly.
Finding cards with low APR balance transfers is not difficult, either. Listings of such offers, many with a zero percent interest rate for a year or more, may be found on the Internet. Take care to read through the exact terms of the offer. Low APR balance transfers are often reserved for those with excellent credit. Even if one is offered a pre-approved balance transfer, this may not mean that the interest rate claimed in the advertisement will be the rate received, for the offer always depends upon satisfying certain criteria. Also, be careful to note whether the interest rate is different for new purchases made after the transfer. Otherwise, a person may find himself incurring a high rate of interest on these items. Many are surprised to discover that any payments made will be applied to the zero-balance portion of the balance first, while the high-interest portion continues to collect high profits for the credit card company.
Additional pitfalls to avoid are transaction fees, late fees and matters involving closing out other accounts. Check account agreements for transaction fees before signing up for balance transfers. These can add a significant amount to the debt. Some cards do not charge transaction fees for transfers. It can be difficult to keep a low APR balance transfer rate. One late payment and not only are substantial fees imposed, but the zero percent transfer rate will be history. Finally, if an account is going to be closed after a balance transfer from a new low APR credit card, be sure to continue to make payments on the original card until you have received a statement from the old card indicating that the balance transfer has occurred and that the account now has a zero balance.
Low APR Balance TransfersConsumers can use low APR balance transfers to consolidate outstanding balances and obtain savings via lowered interest rates on their credit card debts. However, careful thought and discipline is required in order to reap the benefits of this type of financial positioning. Proverbs 14:15 states that this is a positive thing: The simple believeth every word: but the prudent man looketh well to his going. The concept itself is not difficult to understand. The consumer applies for a credit card which offers a 0% interest rate for a certain period of time. Using zero or low APR balance transfers, outstanding debts are moved to the new card which currently does not charge any interest. In this way, the consumer is able to apply all future payments towards eliminating debt, rather than paying high interest charges. This allows a person to build an emergency savings account with funds which previously had gone towards interest, or apply more money toward reducing debts even faster. Of course the idea is that by the time the 0% interest rate expires, the debt will be paid off, or at least significantly reduced.
Several obstacles can interfere with these well-laid plans. Not all customers can qualify for such rates. Read all of the fine print on the application for low APR balance transfers before signing up for such offers. Sometimes a person will be assigned a higher rate after a review of the credit application or credit history. Be sure to note any transaction fees which accompany the balance transfer. Generally there is a fee for 3-5% of the transferred balance. Some companies have a cap on these fees, although the amount can very widely. Whatever the rate, it will usually be charged immediately when the money is transferred.
If the application is successful, continue to make minimum payments on the old account until the statement arrives which shows that the transfer has taken place. This can take up to a month at times. Meanwhile, investigate other ways to learn to live within your means. Many financial counselors advocate using a budget to keep costs in check. Even simply writing down every expenditure for a week or two can illuminate areas where money is flowing away, and where lifestyle changes could be made. Allow for a small 'treat' when significant debt reduction milestones are met, in order to encourage further efforts. There are any useful and interesting websites about handling finances and eliminating debt which may be consulted for further ideas about living well, yet reducing expenses.
Cleared accounts can look extremely inviting. If the balances appear on the card statements as cleared, there is a tendency to think that the card is available for further use. It can be difficult to remember that the debt has not yet been eliminated by balance transfers -- only moved to a place which will not charge exorbitant interest, so that the debt can be attacked with all available funds. Therefore, when funds are transferred using the zero or low APR balance transfers, the cleared accounts should be either closed (if the temptation to use them seems too strong) or at least filed away in a safe deposit box (or some other slightly difficult-to-access place) so that a spending urge can not sabotage attempts to eliminate debt.
There are many informative articles available on the Internet which can help an individual decide whether closing or keeping the account open will be best for his credit score. Needless to say, further credit purchases should not be made until all debt is eliminated. An emergency credit card can be reserved for true moments of need. Decide beforehand which conditions constitute such an emergency! Otherwise, if a person continues to charge items on the cleared card, soon he will have to deal with a new large debt in addition to the one which has been moved to a new location by low APR balance transfers.
Speaking of new large debts, another danger in using zero or low APR balance transfers as a tool for debt reduction is that there are severe penalties for late payments. Usually the zero or low interest rate is immediately replaced by an astonishingly higher number -- close to 29% in one case. Rates like that can cause debt to skyrocket, especially since the original debt is likely to be several thousand dollars or more. For example if the debt was $2,000, a 29% interest rate would result in $580 in interest being tacked onto the original debt. A debt of $5,000 at the same penalty rate would result in $1450 in interest! Also, further opportunities for taking advantage of low APR balance transfers would be out of reach for quite some time. Therefore, timely payments are a real necessity for someone seeking to eliminate debt. Arranging for automatic payments to be disbursed each month may be a wise course of action to pursue in order to prevent unpleasant consequences such as these.
One further idea about maintaining a check on credit card purchases is to have one card which must be paid off every month, and one available for larger purchases which allows a longer period for repayment. The latter would be used only for emergency items such as repairs on a car which is necessary for commuting to a job, or on a refrigerator which suddenly expires. Use the card which must be paid off every month for budgeted expenses. Get in the habit of using cash whenever possible. Paying in cash helps consumers realize that actual money is being spent. Those who use credit cards for consumable items such as food tend to spend more when they are using a credit card. Using cash calls for some pre-planning, which also can act as a check upon spending and an aid to budgeting. This combination of careful planning, persistance in corrective actions and the use of zero or low APR balance transfers can result in significant reductions to stubborn debts.