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Wednesday, June 22, 2011

The Hidden Truth about Cheap Credit Cards

Cheap credit cards are considered to be equivalent to low interest credit cards. However, not all low interest rate credit cards are cheap. Either such cards can have a fixed rate of interest through out the tenure of your balance or they can have a fluctuating rate of interest. Which one is actually cheaper?

Types of Cheap Credit Cards

Now, most armchair financial gurus will 'know' and advice you to opt for a fixed rate card. They will argue that such low, fixed rate credit cards will prove to be very cost-effective in the long run. A variable rate card may begin with lower interest in the first few years and then gradually its rate of interest will keep increasing over the next few years. This allows you to pay off increasing interest amounts as your salary increases. However, they believe, a fixed rate card is a better option because its interest rates do not jump alarmingly like the variable rate card. In addition, fixed rate cards are also cheap credit cards because the company will have to inform you before they increase the rates.

Unfortunately, the truth is very different. Discussing the pros and cons of low interest credit cards is quite another matter than actually having one in your wallet. You see, the practical realities dictate that you must choose a card that suits your lifestyle.

Good Credit for Cheap Credit Cards

For example, do you really manage to pay off your balances every month … all your balances, every month? If you do not clear pending dues every month, then you could land yourself in a tight financial spot, regardless of the fact that your interest rate is low or high, variable or fixed. However, if you have limited income then it might pay to use variable, low interest rate credit cards because in the initial years of your career, you need all the help you can get. Or if you have already sunk into the debt morass, you can use such variable rate and cheap credit cards to slowly lever yourself out of the debt

The Details of Low Interest Credit Cards

Take time off to read the fine print in detail. Can your fixed rate card company suddenly jack up the rate of interest without your permission, or in the very least, without informing you? Is it actually a cheap card? Speak to sales representative, and other users of the card to get the full low down on the processing charges, annual fees, etc. Cards will penalize you stiffly for late payment or for going over your balance.

Low Interest Rate Credit Cards are Time Bound

And always remember one thing - low interest rate credit cards are not low interest forever. Such cards make low interest rates offers for a time period and you must always, but always, check the time period for such great rates. Almost certainly, the low interest offered by a card will jump up after some time, yes; interest rates for fixed rate cards will also go up. Even if you have been the model credit card user and never gone over your balance or never defaulted on a payment, the sad truth of life is that interest rates always go up after, say, 6 months.

So, if you really want cheap credit cards, don't worry about variable or fixed rate of interest. Instead, pay off your debt on time every month and read the details before you sign up for a card. Low interest credit cards will jack up interest rates even if they are fixed or variable rate cards. Use low interest credit cards wisely – and some tips to make them work for you is to opt for a zero percent balance transfer, check if you can get air miles in exchange for points if you are a frequent traveler, or perhaps see if your local retailer partners with your card company. You need to use cheap credit cards judiciously in order to make them cost-effective for you.

1 comment:

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