Financial Questions: What Are The Best Credit Card Rates?

Many credit cards have good interest rates, but it is important to understand how they work and how long they last.

What are the best credit card rates? The best rates are the lowest ones, of course. But there are some things to consider about rates when picking a card besides just how low the rate is.

First you need to understand the difference between the rate for purchases and other rates, such as the rates for balance transfers and cash advances.

Typically, the rate for purchases, balance transfers, and cash advances are all different. Companies that issue credit cards have cleverly devised schemes to keep you paying the most interest for the longest period of time. Rather than your charges and their respective interest rates being paid off chronologically, a high interest charge like a cash advance will go to the very back of what you are paying off. For example, if you take a cash advance for $200 and then make a charge for $1000, your payments will not go towards the higher interest $200 until after you have paid off the lower interest $1000. The parts of your balance that are subject to higher interest rates continue to grow while you struggle through the portion with lower interest.

Consider a common offer you might find in your mailbox. In huge type, you see zero percent. A rate of interest can not get better than zero, so you investigate further. Usually you will find that the zero interest rate is for one of two things: strictly for balance transfers for a limited period of time, or strictly for purchases for a limited period of time. (Rest assured that a rate of zero percent interest will never be forever.) After the limited period--usually between six and 12 months--the rate usually goes up to a much more common 13 percent, or higher, although sometimes part of the deal is a nicer fixed rate (around 10 percent). Fixed rates--as opposed to variable rates--are rates that do not change from time to time. Of course, these are rare.

Suppose you have a large amount of debt on several credit cards, which includes high interest charges like cash advances. If you are approved for a credit line which would enable you to transfer that high interest balance to a card with a zero percent interest rate, then even if it is only for a few months, the savings on interest would be well worth it.

Not having to pay interest on credit card balances can help you finally start getting ahead if you are having trouble finding your way out of debt. High interest balances can keep you from seeing any significant change if you are making the minimum payment. While this year or so of no interest lasts, you should make the biggest payments possible to be truly taking advantage of it.

Furthermore, the rate that follows after the introductory zero percent is over will likely be lower than the rate you were paying on the cash advance. While it is not good to constantly rotate balances to new credit cards, it is better than being late on your payments, or worse""missing payments altogether.

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