Credit Cards With Low APRs - Are They a Good Thing?
Credit cards can be good or bad, it all depends on how they are used.
Whether they are a good or a bad thing is totally dependent on the person who holds them.
They are a convenient way to make purchases on line and other purchases and payments without always have to write checks or carry cash.
However, they can also be misused for spending beyond your means and that can lead to unimaginable levels of debt with huge monthly interest.
Debt consolidation is often a option considered by people facing serious credit card debt.
And usually there is a stream of offers by companies ready to help them consolidate their debt onto a single credit card.
Normally these offers promise lower interest rates.
However, the reality is that low interest rates are usually only a reality for people with excellent credit.
The average person who is fighting to get out from under a mountain of debt does not have excellent credit and will likely not qualify.
At times these cards are offered to struggling debtors and it could be a way out.
But before accepting a credit card with the goal of consolidating debt there are some things to consider.
Consolidating onto one credit card almost never lowers your overall debt.
So you haven't really improved your situation in any way.
And interest compounding on such a large balance over a long period of time means higher overall interest paid back in the long run.
The interest rate is one thing to consider.
But the length of time you will be paying on the debt is also a factor.
A $10,000 debt at 8% will accrue more interest over 5 years than a debt with the same balance at 10% for 2 years so the overall amount you pay back on the debt with lower interest will be a great deal higher.
The culprit is compounding interest.
With 8% interest over 5 years compounding interest means in reality your net interest rate paid on the balance above the principle is 21.
656%.
It would be 10.
748% with 10% interest over 10 years.
The 8% and 10% are not the total percentage of interest.
This is the annual percentage rate (APR), only the rate for a period of a year.
The benefit of the loan with a lower interest rate and longer term is that your payments are significantly lower, less than half.
It may be that your circumstances make a lower payment easier to handle and that may be worth the extra money in the long run.
It is easy to find on line calculators to help you amortize loans with different terms to see which is the right fit for your situation.
Whether they are a good or a bad thing is totally dependent on the person who holds them.
They are a convenient way to make purchases on line and other purchases and payments without always have to write checks or carry cash.
However, they can also be misused for spending beyond your means and that can lead to unimaginable levels of debt with huge monthly interest.
Debt consolidation is often a option considered by people facing serious credit card debt.
And usually there is a stream of offers by companies ready to help them consolidate their debt onto a single credit card.
Normally these offers promise lower interest rates.
However, the reality is that low interest rates are usually only a reality for people with excellent credit.
The average person who is fighting to get out from under a mountain of debt does not have excellent credit and will likely not qualify.
At times these cards are offered to struggling debtors and it could be a way out.
But before accepting a credit card with the goal of consolidating debt there are some things to consider.
Consolidating onto one credit card almost never lowers your overall debt.
So you haven't really improved your situation in any way.
And interest compounding on such a large balance over a long period of time means higher overall interest paid back in the long run.
The interest rate is one thing to consider.
But the length of time you will be paying on the debt is also a factor.
A $10,000 debt at 8% will accrue more interest over 5 years than a debt with the same balance at 10% for 2 years so the overall amount you pay back on the debt with lower interest will be a great deal higher.
The culprit is compounding interest.
With 8% interest over 5 years compounding interest means in reality your net interest rate paid on the balance above the principle is 21.
656%.
It would be 10.
748% with 10% interest over 10 years.
The 8% and 10% are not the total percentage of interest.
This is the annual percentage rate (APR), only the rate for a period of a year.
The benefit of the loan with a lower interest rate and longer term is that your payments are significantly lower, less than half.
It may be that your circumstances make a lower payment easier to handle and that may be worth the extra money in the long run.
It is easy to find on line calculators to help you amortize loans with different terms to see which is the right fit for your situation.
