It is no secret that credit card interest rates are high. They are some of the highest interest rates around. But what if you are only making the minimum payment each month? You could be paying a lot in interest than you need to be.
When you carry a credit card balance, the interest charges can be quite high. But that does not mean there are no ways to save yourself some money. For example, if you have an MBNA True Line Mastercard with 14% interest rates and carry $5k worth on your account each month at 19%. You could save yourself hundreds in annual fees by switching to the one that charges 12%, like The Platinum Card from American Express!
What Is Credit Card Interest?
Credit card interest is the amount of money that you have to pay on top of the principal amount that you owe on your credit card. This interest is charged by the credit card company each month, and it can add up quickly if you’re not careful.
Credit cards are convenient for making purchases, but it’s important to know the risks involved. Credit card companies charge interest if you don’t pay off your balance in full each month so even though they may offer 0% introductory rates on new accounts or accept applications with low-impact fees.
Paying off your debt in full is the best advice. This is because potential interest charges can pile up on your balance if you’re not constantly paying down what is owed each month. This leads to all that extra debt becoming a burden!
“There is no such thing as “interest-free” when using a credit card!”
How Credit Card Interest Works
When you purchase with your credit card, you are borrowing money from the credit card company. The company will then charge you interest on the money that you have borrowed.
The interest rate on your credit card is the percentage of the outstanding balance that you will be charged each month. For example, if your interest rate is 20% and you have a balance of $100, you will be charged $20 in interest each month.
The interest rate that you are charged will depend on several factors, including your credit score, the type of card that you have, and the company that issued the card.
How Much Interest Are You Paying?
If you are only making the minimum payment each month, it will take you a long time to pay off your debt and you will end up paying a lot of interest.
- For example, let’s say that you have a credit card with a balance of $5,000 and an interest rate of 20%. If you only make the minimum payment of $100 each month, it will take you nearly 40 years to pay off the debt and you will end up paying more than $13,000 in interest!
If you are paying more than the minimum payment each month, you will pay off your debt more quickly and you will pay less interest.
- For example, let’s say that you have a credit card with a balance of $5,000 and an interest rate of 20%. If you make a payment of $200 each month, it will take you just over 2 years to pay off the debt and you will pay less than $2,000 in interest.
What is a Good Interest Rate on a Credit Card?
Card interest rates vary depending on your credit score, with better scores meaning lower rates. Some cards have rates as low as 0%, while others have rates as high as 30%. The average interest rate on a credit card is about 15%.
There are many factors to consider when shopping for credit cards, but knowing your score and what type of loan arrangement would be best suited based on that information can help you decide which card is right. You can find this information at no cost through various resources or simply by asking any company willing enough!
Benefits of Low-Interest Cards for Eliminating Debt
One of the best ways to use a low-interest credit card is to transfer your balances from other cards that have higher rates. This can help you save money on interest and pay off your debt more quickly.
The best low-interest credit card for you depends on your situation. If that balance will only be temporary, look out for cards with introductory rates of 0% and pay them off before they expire in order not to get stuck paying more than necessary! But if it seems like balances may last longer than 12 months then go ahead and apply without hesitation just make sure there are no hidden fees that came along while waiting tables either.
There are a few things to keep in mind when you’re considering lowering your interest rate:
- Make sure you understand the terms of the transfer. Some cards charge a fee for balance transfers, and others have a limited time in which the introductory rate applies.
- Remember that a balance transfer doesn’t make your debt disappear. You’ll still need to pay off the balance, and if you don’t pay it off within the intro period, you’ll be stuck paying interest at the regular rate.
- Keep in mind that a balance transfer can hurt your credit score in the short term. That’s because it will increase your credit utilization ratio, which is the amount of debt you have compared to your credit limit. A high credit utilization ratio can hurt your score.
Credit card companies make money by charging interest on the balance that you carry. The higher the interest rate, the more money they make.
- Are You Paying Too Much Credit Card Interest? - June 22, 2022