How Low-Interest Credit Cards Help You Manage Debt
Highlights from this article:
Low- or zero-interest credit cards reduce the cost of borrowing money.
Lower interest rates may be ongoing or temporary — make sure you understand the terms.
These cards are best suited for people who carry balances and want to slow overall debt growth.
Some credit cards charge lower-than-typical annual interest or no annual interest at all (usually for a limited time). These low-interest cards are ideal if you don't always pay your balance in full each month, but would like to slow the growth of your overall debt.
How low-and zero-interest credit cards work
Typical credit cards charge an annual percentage rate (APR) of 19.99% to 21.99%, while the APR on a low-interest credit card may be 9.99% to 14%. This lower interest rate can either be an ongoing feature of the credit card or a promotional rate that's only available for a limited time after opening your account.
Zero-interest cards are rare in Canada, but when they are, that 0% interest rate is usually a promotional rate on purchases or balance transfers for a limited time, say six to 10 months. For example, the CIBC Select Visa offers 0% on balance transfers for 10 months with a 1% transfer fee.
Low-interest cards slow the growth of your debt, which can make it easier to pay off. The key is resisting the urge to spend more just because the interest rate is lower — especially if the low rate is temporary.
» MORE: How do credit card interest rates work?
Things to keep in mind when choosing a low-interest credit card
Low-interest credit card eligibility requirements are similar to other cards. You must be the age of majority in your province, be a Canadian resident and meet the annual income and credit score requirements.
If you’re transferring a balance to a low-interest card, make sure you read the terms. For example, your account usually needs be in good standing and you may not be allowed to transfer a balance to a new card from the same issuer. Take note of any transfer fees, as well as whether the new card has an annual fee.
Pay special attention to how long the low-interest period lasts, if it's a promotion, and what the interest rate becomes once that promotional rate expires. Also, think about whether you can actually pay off your balance or put a significant dent in it within the low-interest period.
Finally, consider whether you want a low-interest card with additional rewards, like earning cash back or the opportunity to collect points towards travel, merchandise or a statement credit.
Looking for a great low-interest credit card?
Get a leg up on your debt by paying less interest each month.
The pros and cons of a low-interest credit card
There are many pros and very few cons to a low-interest credit card if you carry a balance, but here they are at a glance:
Pros
Slow the growth of your balance due to compound interest, which gives you a chance to pay off more of the principal.
Annual fees may be lower or waived.
Lower interest rates on purchases, and possibly also on cash advances and balance transfers, depending on the card.
Cons
Fewer rewards or other card benefits.
Low interest rate could make it tempting to charge more purchases to the card.
May charge a fee to transfer a balance to the card.
DIVE EVEN DEEPER
Georgia Rose
