Low Interest Credit Cards

Credit cards are neither your salvation nor a destroyer. They are a tool, and how you use that tool is up to you.

It can be used for the sake of convenience, for online shopping and the dozen other uses for which it was designed. Or, it can become a means of increasing your debt to absurd levels and cause you to pay painful amounts of unnecessary interest every month.

Something that most people don't know is that the Bank issuing your credit card can change the rate and terms at any time and for any reason. And we do mean this literally. In fact, next time you receive a credit card offer in the mail, read the fine print. You will see that somewhere buried at the end, in fine print, after they explain how fantastic the offer is, it says "we reserve the right to change the rate or terms at any time and for any reason". An introductory offer of 6% may actually mean 18% within a couple of months, for no apparent reason.

Many who let credit card debt get out of control see debt consolidation as the way out. They are often presented with a stack of offers to reduce their credit card debt by consolidating all their debt onto one credit card.

But those offers, though they frequently tout 'lower interest rates' should be viewed with a skeptical eye. Those lower interest rates are usually only available to a select few with very good credit ratings. That doesn't apply to the typical person who is struggling to overcome a history of excessive debt and find a way out.

But, they can offer a way to solve the problem over the long term. You may, in fact, be able to qualify - the only way to be sure is to apply. But even if you're accepted, there are several key items to keep in mind when considering this solution.

Very rarely will such credit card offers lower the actual amount of principle outstanding. As a result, you have exactly the same amount of debt on the day you acquire the new card. And, over the long term you will actually sometimes pay more.

A lower interest rate can, indeed, be a benefit. But lowering the rate doesn't always mean lowering the total amount. If you pay 8% on a debt of $10,000 for, say, five years you will pay more than paying 10% on $10,000 for two years.

The reason is the compounding effect of interest. The total amount of interest paid in the first case is $2165.60. The net interest rate overall is 21.656% when calculated as the percentage paid beyond the principle. In the second case, you pay only $1074.80, with a net interest rate of 10.748%.

Remember the 8% vs 10% are the APR in each scenario – the annual percentage rate, this is the rate for a one year period – not the total percentage of interest.

Of course, the upside is that in the case of 8% over five years, you pay only $202.76 per month, in the second case you pay $461.45 per month. Many will find the former payment easier to manage than the latter. And, you may be able to find some middle ground. Calculators available online will help you run through the different scenarios, in order to guide you to choosing the one that's best for you.

Beware, though, that missing one payment (or sometimes just sending one payment a few days late) will be enough for some credit cards companies to skyrocket your interest rate. We recently received an email from a client who told us that his interest rate went from 6% a year to 33%, because he sent his payment late.

If you are facing a credit card challenge you may want to check out The Credit Solution by Manganiello & Cummuta. This amazing program will give you an in depth understanding of how FICO score works, the five primary factors guaranteed to affect your credit score, and the quickest and easiest ways to change inaccurate information on your credit report. You can order it from Nightingale-Conant and listen to it at your leisure (you will receive 4 CDs and a workbook). You can order it here.

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