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Saving on Interest Expenses with low-interest and 0% APR Credit Cards

What is the best way to save money with credit cards?

The easy answer is to pay off the balance every month and only spend what you can afford to spend. Paying off the balance on your credit cards every month lets you avoid interest expense and finance charges. It’s like getting an interest-free loan. Isn’t that a great way to save money?

That would be a great idea. But what about for the rest of us who, for one reason or another, carry balances on our credit cards? Isn’t there a way in which we can save money on our credit cards?

Fortunately, there is. All the major credit card companies (Visa, MasterCard, Amex, and Discover) offer a wide variety of credit cards, but not all the interest rates are the same.

Two ways to save:


There are 2 kinds of offers usually offered. The first is the special 0% introductory APR (annual percentage rate). This is where the card gives you a 0% interest rate for a short time and then raises the APR after that time is over (usually 6 months). Another option is a lower fixed-interest credit card—how low “lower” is depends on how high the interest rates on your current cards are presently.

How much money can a low interest credit card save you?
Let’s compare the difference between an 8% fixed interest rate versus a 20% fixed interest rate (a typical rate). Let's look at some numbers:

Let’s say you carry a balance of $1,000 for a year on your credit card for a full year. One at a 20% fixed interest rate, and your interest expense is $200.

$1,000
x .20
--------
$200

But on an 8% fixed-interest credit card you would only spend $80 in interest expenses.

$1,000
x .08
--------
$80

So, by going with an 8% card over a 20% credit card, you are saving $120 a year.

This doesn’t even include the money you will save in finance charges. Let’s also look at how a 0% introductory offer can save you money. Let’s compare the credit card with a 20% fixed interest rate with a card that gives you 6 months at a 0% rate but goes up to 25% afterwards. Again, let’s assume you carry a $1,000 balance over a year.

On a 20% fixed interest rate , you will spend $200.

$1,000
x .20
--------
$200

But let’s look at the numbers on a card with a higher normal rate but with a lower introductory APR:

It is $250 for one year at a fixed APR of 25%

$1,000
x .25
--------
$250

But the first 6 months is 0%. So, we can divide that by 2 and we have $125. So, you save $75 going this route. But for the sake of your credit, it is best to use this ONLY as a short-term solution. All the major cards—Visa, MasterCard, American Express, and Discover, have these kinds of offers.

As you can see, 0% APR cards and low fixed rate cards can save you money over time. Remember though: the BEST way to save money is to pay off your cards monthly. But for the rest of us who carry a balance, getting a low interest credit card or a credit card with a low introductory rate is one way to save you money in interest expenses.

Before applying for any credit card, be sure to discuss with your financial advisor which credit card is best for your unique financial situation.

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Additional Resources

Credit and Credit Cards
Types of Credit Cards
Glossary of Credit Card Terms
Do’s and Dont's of Closing Accounts
Protecting Your Credit Card
Limiting Your Financial Loss

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