Do you ever buy anything with a credit card? If so, you are using one of the most common forms of loan available. Credit cards are nothing more than shot-term, unsecured personal lines of credit. Basically, the credit card company is willing to loan you cash up to whatever your credit limit is so you can buy stuff.


If you want to avoid paying any interest to the credit card company, then you need to pay off your balance in full each month. Most people don’t seem to do this though. If you pay less than the full amount, then you end up paying interest to the credit card company on the loan you have taken out from them. The interest rates credit card companies charge vary widely, more so than any other form of loan.

What To Look For In A Credit Card


If you don’t tend to spend much money and have plenty of savings, then you are likely to be able to pay off your credit card each month. If you’re one of these lucky folks, look for a rewards card. American Express has a lot of good cards for these. You may also look into getting an airline credit card if you fly one specific carrier a lot.


However, if you don’t tend to pay off your bill each month, don’t worry about the rewards. While they may seem like fun and an added bonus, those cards also tend to charge a higher interest rate. Your main focus should be on a credit card with a low interest rate. There are two interest rates in particular to look for: the introduction APR and the long-term APR.


Many credit card companies will give you a honeymoon with your credit card. They will charge you an introductory APR, which may last anywhere from a few months to over a year. This year may be as low as 0%, meaning you don’t pay any interest on your card.


There’s two catches with these low introductory APR rates. First, if you miss a payment, they will start zapping you with the full interest, so make sure you always pay at least something on time. Second, the long-term rate will likely be much higher, such as 20%.


The long-term APR is the most important thing to people that tend to maintain a balance on your credit card. You want to make sure the card you consistently carry a balance on has a low long-term APR, since unfortunately it’s likely you will be paying this interest for awhile.

Balance Transfers


Do you want to shift a balance from a high APR card to a lower one? Do you need short-term money in your bank account? If so, a balance transfer may be for you.


The most common use of a balance transfer is moving a balance from a high interest credit card to a lower interest one. Typically, a user will apply for a new credit card that has a low interest rate on balance transfers. The credit card company will generally charge a fee for the balance transfer, which is usually 3% of the balance transfer amount.


So if you have $10,000 in credit card debt on a card with a 20% interest rate and want to move that debt to a new card that charges 0% APR on balance transfers for 12 months and 12% thereafter, it would cost you $300 up front to do so. But your savings long-term are huge. After a year  (the interest free period), you save yourself $2000 in interest. Afterwards, you’d save yourself $800 year in interest.


Some credit card companies let you do a balance transfer to your checking account. Please note though that sometimes they may bill this as a cash advance, which means you’d be paying 20% or more APR instead of whatever the balance transfer APR is. You may do this because you need physical cash for whatever you are purchasing instead of just moving your debt around.