Credit Cards

Do Interest Rates on Credit Cards Really Matter?

Credit cards will tend to vary in the interest rate that they have although, they will all be fairly close in order to stay competitive. We are often encouraged to pick the lowest interest rates in order to make sure that we do not pay more money than we need to. However, it can seem like a lot of hassle to do all of this research and the rates change a lot anyway so we may not think it is worth it. If we already have a card them swapping may just feel like too much of a hassle. It is worth thinking though, about whether the interest rates are important and what impact they might have on you.

If you repay the card in full

If you repay your card in full each month then you will never pay any interest. If you are therefore in this situation, you may feel that the interest is just not at all relevant to you. You are right as long as you continue to always repay the balance in full. Having a direct debit set up to do this is the safest option as you will then never forget to pay off the card. However, you do need to make sure that there will be enough money available to repay it and so setting up that direct debit just after you have been paid would be very helpful and is something that you will be able to negotiate with your card provider.

If you are paying the card off in full then it can be worth looking into a cashback card or similar. These will give you rewards for spending money on the card. The interest rate tends to be higher, but if you never pay any interest then this will not matter. Make sure that you find one with a reward that suits you. You do need to be careful though as the rewards are often based on spending and if you spend more you will often be able to get a better reward. This can sometimes lead to the temptation to spend more than we otherwise would so that we get a better reward. If you are buying the same things but just using the card rather a debit card or cash, for example, then this is fine, but if you are buying extra items to get the reward then this is not. This is because you will be spending more money than you will be gaining and it is not worth it.

If you have an outstanding balance

If you have an outstanding balance on your credit card and do not pay off the full balance each month then you will be charged interest. This will be paid each month and it probably will not look like that much. However, if you find a card with a low interest rate then you will be paying less. If your debt is outstanding for a significant period of time, then this interest will add up and the difference will really show. Consider a few percent different over a few months and you may not think it is worth worrying about but if your debt continues over a couple of years or you keep topping up the debt by using the card, then the interest rate difference can be significant.

To prepare for the future

If you do normally repay your card in full, be prepared for the future and any financial changes that may happen. You may find that you do get to a stage where you are no longer able to repay the card in full each month. If this is likely then you need to make sure that you do get a card with a low rate. Hopefully you will be able to know that this going to happen and get your card swapped over in time, to one that is cheaper. If you leave it until you have unpaid debt then it may be more difficult as you will need to do a balance transfer and there are fees associated with this.

So, in conclusion we can say that interest rates do matter, even if you repay the card in full. This is because you may not be able to afford to repay it in the future and s you need to be aware of how much interest your card holder charges, so you can switch if necessary. If you do have outstanding debt then the interest rate is very relevant. You do not want to pay more than necessary and therefore it is worth making sure that you are not paying a high rate for your card as this will cost you more and make it harder for you to be able to afford to repay the outstanding balance.