Handing a clerk a credit card.
Personal Finance

Think About Your Credit Card APR

Your credit card interest rate is something you might not think about very often. Most people pay more attention to their limit and the rewards that they are getting from using their card. Take a minute to think about your interest rate and see how it is affecting you and what you can do about it.

When you get a credit card, chances are that the first thing that you notice is the perks. These days credit card companies lure you in with some pretty nice ones. 2 percent cash back, frequent flier miles, etc, etc. It can be distracting and that is a good thing for the credit card companies. Perks are not free for the credit card company and they make sure that they are not free for you, in the end.

APR’s Affect You In A Big Way

Your APR will determine the amount that your credit costs you. It is an extremely important number but one that is not shopped for as much as the perks. As a consumer, you probably think that you will not carry that balance and that you should concentrate on the rewards. After all, you are just going to pay it off every month anyway. This has a way of not happening.

The average American is carrying just over $6000 in credit card debt. $6000, at the average national interest rate of 17% would take over 7 years to pay off with an interest cost of $4510. That is considering a 2% monthly payment. Lower that interest rate just two points to 15% and that changes quite a bit. It would now take 6.5 years to pay off with an interest cost of $3474. That is a savings of over $1000,  $1,036 to be exact.

In other words, by distracting you with perks, your credit card company stands to make an additional $1000. Chances are good that you are not going to earn $1000 in perks, so the credit card company stands to profit quite a bit.

So, instead of shopping for the card with the best perks, you should be shopping for the card with the best rate. You might not think you will be carrying a balance but you probably will be.

APR’s Tend To Rise

Chances are that you might not notice a slight increase in your interest rate, but you should. When was the last time that you checked your interest rate? If it has been some time, you should do so ASAP. Chances are that it has crept up a few points since the time you opened your account.

As the number above indicates, just a few extra interest points can make a huge difference. It can cost you thousands of dollars by the time you pay it off. Audit your credit card accounts once a year and make sure everything is still agreeable to you. Notices have a way of getting lost or disregarded and you might not have noticed a change that has been made. Pay particular attention to your APR and any annual fees.

APR’s Are Negotiable

If your account is in good standing, a lower rate is probably a phone call away. Credit card companies are like many other companies out there, they thrive on apathy. They know that most people will not complain and just accept what they are given as the norm.

Do not be like that. If you feel that there is wiggle room, you should call your credit card company and ask for a lower rate. The cost of a new customer is high and most will grant you your request and every interest point makes a big deal in the end.

For the best negotiating power, you should have your account paid off or nearly paid. Be prepared to cancel the account if they do not grant you a decrease. Sometimes, you might have to go all the way to requesting cancellation to get that final offer of a lower rate.

One word of caution, when negotiating a credit rate decrease on an old account, be careful. If your credit card is one of your oldest lines of credit, closing it might negatively affect your credit. If that is the case, by all means ask for a rate decrease but hold off on threatening cancellation.

Best Credit Card Practices

Here are a few things that you should always do with credit cards.

Shop APR First

Remember, those perks do not come free. When shopping for a credit card, look for two things. No annual fee and the lowest APR possible. You will probably not get that on the card with the biggest perks. Companies are profiting by offering those rewards which means that most people would be better off shopping for a card based on rate.

Audit Your Card Details

Once a year, at least, you should look into your card details. If a term changes, your will be sent a notice but these notices, either electronic or by mail, are easy to miss.

Pay Your Card Off Monthly

The credit card companies are counting on you carrying a balance. This is how they make money. Pay off your card when you receive your statement and avoid paying interest entirely. Do not use a credit card as a long term loan. If you need to finance a big ticket item, you are better off seeking a personal loan or a line of credit.

Keep Balances Low

If you must carry a balance, keep it below 30%. Any higher than that and your credit will take a hit.

Use Automatic Payments

If you are bad about sticking to a payment schedule, set up automatic payments. Set them up for the minimum payment and then if you want to pay more in a month, make an additional payment when you remember. If automatic payments are not your thing, sync up your payment due dates. Call your card issuer and have your due date changed to the same date as other payments.

Don’t Carry Your Card With You

Avoid impulse purchases by leaving your credit card at home. Carry your debit card with you or even better, cash. It is harder to spend cash because we have more of a psychological connection with it.

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