Low Interest Rate Credit Cards The Hidden Traps By Roger Overanout At Isnare.com Ezine Articles

While low interest rate credit cards are not currently very common there may well be lots of low interest credit card offers hitting your mailbox in the next three to nine months, as the banks and lending institutions eventually get bailed out of their bad loans by the Federal Government, and then start competing for the revenue streams that credit cards represent.

Here is a simple set of guidelines for you to keep in mind as these offers come pouring in; nearly every single one of the guide lines boils down to common sense and reading the fine print, and they all come down to understanding how interest works and how banks make money off it.

When you have a credit card, it has an interest rate, expressed as a percentage. This is the percentage of your annual balance that is charged as a usage fee every year by the bank. For your convenience, it's applied monthly. For example, if you have a card with a 12% APR interest rate, and borrow $1,000 on it as your average balance, you'll bay $120 in interest on the loan.

Every credit card has a grace period; this is the period during which if you pay off the balance, no interest accrues. One of the things to look at carefully in a low interest credit card offer is how long the grace period is. Typical grace periods are in the realm of 25 to 35 days; longer grace periods are better than shorter ones from your perspective. Some low interest credit card rates set their grace periods as low as 14 days after the purchase - even if they wouldn't run another billing cycle in the mean time!

The reason why grace periods are important is because the way to minimize the disaster of bad credit management is to pay off your credit card bills in full, every month, just like you make your car payment every month. Keeping a balance means you start accumulating interest, and the rule of thumb on interest is that it always makes everything more expensive. The mathematical rule of thumb on interest is called the Rule of 72. Divide 72 by your interest rate, in points, and that's the amount of time it takes for the cumulative interest payments to equal the average balance you had on the card.

Some low interest rate cards have an introductory rate, typically 2-3%. If you have an outstanding balance on another card, and have an intro rate offer, look into transferring your high interest balance to the low interest card, and working out how much you have to pay each month during the introductory period in order to pay off the entire outstanding amount. Look at it as a way to get yourself out of debt, not as a way to get more money to spend, and you'll be safer. Pay attention to what the interest rate will be when the introductory low rate ends, and look at annual fees. Also look into what the interest rate changes to if you're ever late with a payment. Most credit card companies run their rates up substantially in that set of circumstances.

As with all financial services options, look at low interest credit cards in context. Be sure to compare the various offers, make sure that what you're getting is, in fact, the best deal for your situation, and work responsibly with your credit to build up a good credit history, so you can keep a good credit history and when you want to buy a big item like a house or a car you can get the credit you want easily.

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