Should Your Really Take Out a Low Interest Rate Credit Card?

By: April Kerr

Credit cards are one of these things in life that can either be extremely useful or they can bring untold hassles and headaches. Whatever way you view credit cards, you should see them as being a tool and whatever results you have with them is up to you.

They can be used very responsibly and are very handy when buying higher priced items where you would feel uncomfortable about handing over large amounts of cash. Some people feel uncomfortable about carrying large amount of money in their wallets in case they are mugged. Also, credit card issuers offer many benefits such as a certain amount of insurance and consumer protection.

The there are those who can't associate credit cards with real money so go on spending sprees. The result is that they end up with huge credit bills which they cannot afford to pay. This combined with high interest rates can easily make you a financial cripple.

Some people who find themselves in such as situation turn to debt consolidation as a method of solving the problem. We are bombarded with adverts for low interest rate credit cards, telling us how easy it is transfer all our balances onto one single card.

Before you fill in an application form, there some things you should understand about low interest rate credit cards. First of all, they tend to be given out only to those with a really good credit history. For those who have found themselves in a bit of financial trouble and have less than perfect credit scores, these low interest rates will not be available to you.

However, the only way to find out if you'll be accepted for one is by applying and they can be a pretty good long term solution. If you find you are eligible, here are some things you should understand:-

Low interest rate credit cards will not lower the total amount you owe. This means you'll still have the same amount of debt. Actually, you may end up paying more in the long run. If you are paying 8% on a loan of $10,000 for five years you will ultimately pay more compared to 10% on $10,000 for only two years.

This is because of compound interest. If you are paying 8% interest on a $10,000 loan over two years, the amount of interest you pay is only $1074.80. However if you are paying on 8% over five years the total amount of interest is $2165.60. This is obviously a considerable difference.

Remember, when you are told the annual percentage rate (APR), this is what you pay every year and NOT what you are paying in total over the life of the loan.

The only real reason you would consider paying off a debt over a longer period of time is to reduce the monthly amount payable. Over five years the debt above would mean a monthly re-payment of $202.76. This is a much more manageable sum compared to $461.45 per month if you are paying over two years. Make a list of income and outgoings so that you can better decide what amount is affordable to you. There are even online calculators which allow you calculate this easier.

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