How low interest cards (such as 0% APR credit cards) can help you reduce your debt.
The latest credit card usage statistics show that the changes underfoot in the credit industry has put a slight damper on how Americans have been using their cards. The average household credit card debt (for consumers who may or may not continue to carry credit cards) has been slipping gradually over the last year — from over $8,300 to around $7,800, while households that do own at least one card have an average debt of almost $10,500. Perhaps a silver lining of the economic downturn?
More interesting statistics bandied around include the fact that 75% of families carry at least one card, which means that 25% don’t own any cards. Also, between 30% to 50% of all card holders actually pay off their debt in full each month (stats vary) so if you buy these numbers, then we’re not really as debt happy as you may think since this would mean that between 55% and 75% of Americans don’t have revolving credit card debt. That’s not bad!
Well count me in as one of those credit card users who aims to maintain a balance of zero. I think it’s safe to say that if you don’t carry a balance, then interest rates may not be that big a deal to you, but for those who do have a revolving balance (around half of all households), finding ways to reduce that debt should be a priority. So I went ahead and compiled these tips to help you cut down on that revolving debt as much as possible:
Lower Your Debt With Low Interest Rate Credit Cards
1. Review the terms of low interest credit cards.
I’ve put together some of the low interest credit cards I am familiar with into the following list. Some of them have these benefits:
- Up to 5% cash back on choice spending categories. Several cards offer credit card rewards.
- 0% APR for the initial 6 months.
- Regular APR of between 9.99% to 11.99% after the intro period.
- No annual fees for most credit cards.
- Some of the cards below are secured credit cards.
These are some of the more popular cards I’ve seen offered:
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*Citi Forward has a regular variable rate of 14.24% which can be reduced by .25 points per quarter (every 3 months) by maintaining a good credit and payment record. Maximum reduction is 2% so the lowest rate you can get is 12.24%.
2. Compare credit card interest rates.
If you’re currently shopping for a card, it makes sense to review the APRs of various credit card categories out there. I found this handy table of Credit Card Rate Averages from CreditCards.com that gives us some idea where rates stand at this time.
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Note that teaser, introductory or promotional rates have not been incorporated in this list.
3. Perform a balance transfer into a low interest rate credit card.
If you’ve got existing credit card balances at high rates, it may be worth checking out whether it makes sense to move them to lower interest cards. Consolidating your debt into a balance transfer credit card account could work if you’ve got the discipline to pay off your balance as speedily as possible — that is, during the intro period where the rate is at 0%. Intro periods nowadays are typically between 6 months to 12 months so that’s how long you’ll enjoy no interest charges on your debt. The catch, of course, is that many cards carry a balance transfer fee, normally around 3% of your balance when you do the transfer. So be aware of these little caveats.
Now I did learn of an interesting card called the Visa Platinum Credit Card that is offered by PenFed (or the Pentagon Federal Credit Union). It charges a very low 2.99% APR for the lifetime of your balance, has a balance transfer fee of 2.5% and a purchase APR of 13.99%. To partake of this sweet deal, you’ll need to first join the PenFed Credit Union.
4. Maintain good payment habits.
Finally, you’ll get the best rates from your credit cards by managing your debt well. Here are a few quick ideas for lowering your rates:
- Check your FICO credit score to know where you stand. If you’re a good customer, talk to your credit card company about possibly cutting your credit card’s interest rate, especially if it’s above the average APR.
- Pay more than the monthly minimum or better yet, pay your entire balance per month if possible.
- Never skip a payment and never be late with it either!
- Don’t exceed your credit limit and avoid cash advances like the plague — they’re expensive!
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{ 8 comments… read them below or add one }
Hi SVB,
Do you know with the PenFed card if you have to actually transfer a balance from another credit card, or can you actually take out the money yourself. Seems like if you could, even after paying the 2.5% balance transfer fee (capped at $100) that it might be a good opportunity for some arbitrage.
Hi Lee,
There are two rates they provide: the low rate applies to your transferred balance, but they’ve got a purchase APR that’s much higher: 13.99%. So you’d have to determine which rate it is you’ll end up having to pay when you perform any sort of arbitrage.
Of course, if anyone out there has the PenFed Visa card, we’d love to hear what you think!
Its interesting that the credit card debt has been slipping. And considered that we are in a recession and more people are jobless its even more encouraging.
I wonder if it has to do with the fact that people are realizing the problems of excess spending. The recession led to a generation of people that were more careful with their money. Hopefully the effects of the current recession on peoples spending habits will be somewhat long term as well.
There is a new phenomenom happening where people are paying credit card debt before they pay mortgage debt – perhaps because they are unemployed or underemployed and are using those cards for their very survival. Wouldn’t it be patriotic if we all stopped paying our credit cards and squatted in our homes. It’s morally outrageous that these banks get huge bailouts from us and have the nerve to stick us with exorbitant interest rates and fees.
I am interested in applying for a low interest rate credit card so I can
request a balance transfer?
Hi SVB,
It is really interesting that credit card debt has been slipping. No surprise since it is recession time and many people are jobless. I think if people understand the problem of excess spending that has led to the recession, then people will become more careful with their money, which should affect their spending habits.
It will be interesting to see if consumers turn more to credit card debt for expenses as a result of home equity loans being less available from banks in the current state of the market.
I am confused by one of your paragraphs:
“The average household credit card debt has been slipping gradually over the last year — from over $8,300 to around $7,800 now (while households that own at least one card have an average debt of almost $10,500).”
What’s the difference between your $7,800 statistic and the $10,500 statistic? Both appear to refer to average household credit card debt of households who own credit cards. Thanks in advance.
Thanks for the question. Please permit me to clarify: the average household credit card debt that’s quoted as $8,300 – $7,800 refers to the debt of all households that may or may not still carry credit cards. Some households may have done away with using their cards but still have a credit card balance. OTOH, households that still carry and use at least one credit card have an average card debt of almost $10,500. Hope this clears it up!