Credit Information


Cutting Credit Card Costs


What are the APRs charged by the credit cards in your wallet? If you are paying more than 12% interest on any of them, you are probably paying too much. The prime rate is currently in the single digits, so credit card companies that charge above 13% APR are overcharging. If you have good credit, you should be able to find a credit card with an APR below 12%. Shop around and get the rate you deserve. Do not be afraid of asking for a lower rate on your current credit card if you think you deserve it. A lower interest rate can cut your credit card costs significantly.

Another action you can take to save money is transferring your outstanding balances to a credit card with a low APR. Many credit card companies offer low APRs on balance transfers, and taking advantage of those offers can save you a lot of money. You need to make sure, however, that the special balance transfer rate is not temporary. Otherwise, you will need to transfer your balance again once the offer expires. You also need to find out if either credit card charges a fee for transferring a balance. The fee might be higher than the money you will save from the lower APR.

Some credit card companies issue fees simply for holding their credit card, even if you do not have an outstanding balance (these are called inactivity fees). Close any accounts that currently charge you an annual fee. There are plenty of credit card companies out there that offer their services for free. Make sure to allow about one month between each credit card cancellation in order to prevent your credit score from dropping. Ask the credit card customer service employee to note on your credit report that the account was closed per customer's request.

You also might want to consider paying your credit card debt with part of your savings. These days, banks only reward your savings account with less than or up to 1.5%, while your credit card charges you up to 21% in interest, so you will actually save more money by using your savings to pay your credit card than by leaving it in the savings account. If this is an option you are willing to consider, make certain that you do not drain your savings completely. It is recommended to maintain at least 3 to 6 months of income in your savings account in case of an emergency.

Now that you are aware of which of your credit cards carry the highest interest rates, pay the most you can afford to those cards and pay a bit more than the minimum payment on ones that carry the lowest interest rates. Once you finish paying off the card with the highest interest rate, move on to the next highest, and so on until you pay off all your credit cards. This strategy will assist you in getting rid of the credit cards with the highest interest rates first, and leave you to handle the ones that do not charge you as much. You should discipline yourself to always pay more than the minimum required payment on any credit card. This can significantly reduce the time you spend in debt and the money you will pay in interest charges.

Remember to always manage your credit card spending and do not over spend. It could end up costing you much more than you bargained for.

The subject matter contained in our educational publications is for informational purposes only. We suggest that you consult your financial or other advisors when planning for your specific needs or requirements.

Ana Ribero is a Certified Financial Counselor for Debt Management Credit Counseling Corp., a 501(c)(3) not-for-profit credit counseling organization.


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