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Does Your Credit Card APR Matter?

Credit Card Basics, Credit Cards
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Does Your Credit Card APR Matter?

One of the most prominent factors in a credit card’s terms and conditions is its interest rate: It’s listed first on the disclosures; it’s the source of academic and policy debate; and it’s even cited as a reason that people should abandon credit cards altogether. But does it really matter to everyone?

If you don’t carry a balance …

As long as you pay off your bills every month, the interest rate is pretty much moot. Still, credit cards require discipline. If you find yourself occasionally slipping up and being unable to pay off your balance in full, you should look at your budgeting strategies and consider relying more on debit cards. However, if you aren’t carrying a balance, your interest rate doesn’t really matter.

If you’re using a 0% credit card …

Whether you have existing debt or you’re making a big purchase that you’d like to pay off over time, a 0% APR credit card might be a good option. In that case, you’d want to look at the length of the 0% APR period, not necessarily the ongoing APR. If you’ll have paid off the entire balance by the time the full interest rate kicks in, you won’t have to worry about it.

» MORE: How is credit card interest calculated?

Is a high interest rate a good reason to steer clear of a card?

Typically, rewards and travel credit cards have higher interest rates than non-rewards cards like zero-APR cards. Yet they’re some of our most popular and highly recommended cards. What gives?

Well, usually, if you’re using a rewards card (unless it has a zero-interest period), you shouldn’t carry a balance on it. Those cards are aimed at people who are bigger spenders, but also pay their balance in full every month. Yes, they have high interest rates — and, often, annual fees — but they might be an excellent option if you don’t carry a balance. In fact, they’re a great way to reward yourself for financial responsibility: You can earn travel miles, shiny perks and more.

Interest rates aren’t the be-all and end-all of a credit card. They’re rightly given a lot of attention, since if you’re not careful, you can find yourself trapped in a cycle of debt. But it’s not the highest consideration for everyone. If you pay off your balance in full every month, you shouldn’t worry too much about your interest rate: Chances are, it won’t really matter.

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