How to Make Your Credit Card Interest Work for You

One of the main reasons people choose not to get a credit card is because of their fear of interest. They think paying off a credit card fully is next to impossible because the interest rates are so extreme. In some cases, interest rates can get up to almost 20 %. With a credit card payment of $5,000 or more, this can definitely add up. However, this is nothing to fear. In fact, interest can work for you.

So what is interest exactly? Basically, interest is the fee a person pays for borrowing money from the credit card balance. In some cases the fee can be as little as 0 %. However, most people pay an annual fee of 17-20 % interest. The fee will depend on how much you owe on your credit card statement. For someone who owes $ 5,000 at 20 % and only pays the bare minimum of 3 % per month, this monthly interest will cost around $80 per month.

However, there are ways to make your credit card interest work for you! Most credit card companies offer 0 % APR (annual percentage rate) as an introductory rate. This means that for a certain amount of time, usually 6-12 months, you will pay no interest on all purchases and overdue bills. However, try to pay off as much as possible within this first year so you won’t be stuck with a large debt and a large interest rate when the introductory rates are up.

Another way to make interest work for you is with a balance transfer. Essentially a balance transfer is a switch from one bank to another, transferring your credit card balance with you. Because banks want your business, they often give you low interest or no interest on this balance transfer. This can mean you return to the introductory interest rate of 0 % for another 6-12 months thus allowing you to pay off your credit card faster without the extra monthly interest fees.

For the extra savvy saver, there is a trick to really benefit from your credit card with a low or no interest rate. During the introductory period, some take out a large amount from your credit card money (borrowed money) and deposit it into a high-savers account. Then, once the introductory time is over and the interest fees go up, return the borrowed money into the credit card account and pocket the interest you have made from keeping the money in a high-savers account for a certain period of time. The process is sneaky, smart and, depending on your high-savers plan, extremely beneficial.

Don’t let your fear of high interest fees dissuade you from getting a credit card. Follow the above tips and take advantage of the low interest rates while you can. Let interest fees work in your favour.

Write to Julie Williams at julie@creditdonkey.com