Low Introductory APR's - Why They Can Be Both Good & Potentially Bad
Determine Your Timeline for Paying Off the Debt
Before you jump head-first into a new credit card just because it has a low introductory APR, take a good hard look at your financial situation. If you are planning on transferring a balance and paying it off within the intro period, a low intro APR card is a wise decision. If, on the other hand, it isn't likely that you'll pay it off during the introductory period, make sure the regular rate is lower than you are currently paying on your existing card. If it is only a little lower, you might be better off contacting your existing credit card company and seeing if they will match or beat the new card offer. You would be surprised how many times they will do just that!
Watch Out for Variable Rate Cards Offering an Introductory Rate
Ask anyone who ever had a variable rate mortgage, and you'll inevitably hear a long story about what a bad decision it was. Why? Because what happens is that the rate increases over time (usually every 1 or 2 years) and the mortgage payment goes up as well. A house that was once affordable is now a financial burden. The same can happen with variable rate cards. You are lured by the prospect of a low interest rate initially, only to have the rate increase after the introductory period. Because the rate is variable, you have no control over that number, which is usually driven by the financial markets. The end result is that you are riding a financial roller coaster with your credit card, which can be frustating and cause more harm than good for most people living on a fixed income.
Before Being Tempted to Take Advantage of a Low Introductory Rate Credit Card, You Should:
- Make sure you have the means to pay on time. Many low intro APR offers have stipulations that if you are late or miss a payment, you will automatically trigger the regular APR. Again, this creates a scenario where you could wind up owing more than if you never transferred your balance at all.
- Ask yourself if having this card for the long term is a good idea. Multiple balance transfers can hurt your credit in the long run. If you are constantly applying for and shifting debt between credit cards, eventually you will find it difficult to get approved for credit cards (and other types of loans) in the future.
As with most decisions, choosing whether or not to take advantage of special offers can have a long-lasting impact on both your credit score and your credit card debt. Take the time to weigh all the advantages and disadvantages before committing to what seems to be a great deal.
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