What to Know About Credit Card Interest
Credit cards are a useful way to manage your finances. You can use them to pay for things you might not be able to afford upfront, like a plane ticket or a home renovation. But credit card companies also make money by charging interest on balances that aren’t paid off in full each month, which is why it’s important to understand how interest works and what kind of rates you’re likely to end up with.
You may be able to get a lower interest rate
If you’re looking for a credit card with a lower interest rate, there are some options for you.
- Look for cards with low or no annual fees.
- Consider rewards points. If the card offers a higher rewards rate than others in its class, that could offset its higher interest rate.
- Consider cards without balance transfer fees and/or cash advance fees if you’re planning on transferring your balance or taking out cash on your credit card to pay off high-interest debt (like payday loans).
SoFi professionals say, “Earn up to 3% cash back toward your financial goals when you apply for a SoFi Credit Card.”
Interest rates are currently low
For a while now, interest rates have been very low. While they could change at any time, it’s safe to say that you might get a lower rate on your credit card than you would on a home equity loan.
Suppose you’re looking for an easy way to save money and avoid paying high-interest rates; pay off your balance in full each month. If that doesn’t sound like something you’ll be able to do (or if it feels too much like giving up), consider refinancing with SoFi Credit Card or another lender who offers lower-rate cards without punishing terms.
Interest compounds daily
The interest you pay on your credit card debt is calculated as a percentage of your outstanding balance. The more you owe, the higher your interest rate will be—and if you carry a balance, that means all those numbers are going up and up.
To illustrate this concept, let’s say you have a $2,000 balance on your credit card with a 12% APR. You make the minimum payment each month, which covers only 3% of the amount due (the other 9% is applied to what’s owed). Over time, these monthly payments won’t even come close to paying off the principal: in fact, they actually increase it by about $20 each month!
Some credit cards offer 0% APR for a time
You might have heard about 0% APR credit cards, which offer a period of time in which you don’t have to pay any interest on new purchases. You can use them to save money by paying off big purchases over time at no extra cost. This can be helpful if you’re spending big and don’t want to add more debt or if you’re trying to pay off your credit card balance before the end of the month so that you avoid paying interest for longer than necessary.
Credit card interest is one of the most significant costs associated with using a credit card. You can avoid paying high-interest charges by choosing the right credit card, paying off your balance in full each month and negotiating for lower rates on any existing cards.