The Unexpected Benefits of Low-Interest-Rate Credit Cards

Credit cards are a convenient way to pay for purchases over time, but you need to be mindful of how interest can increase your debt. Your credit card charges interest on your unpaid balance every month, and over time, those charges can really add up. Using a low-interest credit card means you’ll owe less interest every month, and your balances may grow less quickly.

But that’s not all these cards can do. Keep reading to explore the benefits of low-interest-rate credit cards.

Budget flexibility

A low-interest-rate credit card can make your monthly payments more manageable, helping you stay in control of your finances. A lower rate could mean your monthly minimums are a bit smaller, and any balance you carry will accrue less interest over time.

Lower interest rates are particularly helpful when you spend more than usual. For example, it can help keep your interest costs from ballooning when you have an unexpected car repair or want to plan a big vacation.

It can also be helpful if you need to pay less of your credit card bill than usual. If you lose your job or have another bill to pay off, you can reduce your monthly payment to fit your new budget — as long as you pay the minimum required amount — without worrying quite as much about the extra interest.

Paying less interest also means you can free up more cash for other priorities, allowing you to extend your buying power a little more easily when you want to. For example, a low-interest card may help you pay for a big vacation or buy holiday gifts with less financial stress.

Repay credit card debt faster

A low-interest-rate credit card may help you pay off your debt sooner, especially if you limit new spending on your card and pay more than the minimum monthly payment. Because less interest builds over time, your balance won’t grow as quickly. This is important because credit card providers charge interest every month, which makes it easy for debt to snowball. Having your interest accumulate more slowly means you may be able to chip away at more of your balance and get out of debt faster.

Another benefit is getting to watch your debt go down more quickly. Seeing your progress can help motivate you to stick to your budget and repayment plan.

Improve your credit utilization ratio

If you can pay down your debt faster while avoiding overspending, you can improve your credit utilization. Credit utilization is the amount of available credit that you’re using at a given time. It’s one of the factors used to determine your credit score.

High credit utilization is a red flag to lenders, signalling that you may rely too much on credit and struggle to make payments. Low credit utilization shows that you’re able to manage your credit.

Many experts recommend that you aim to use less than 30% of your available credit.1 For example, if you have a credit limit of $5,000, you should try to keep your balance below $1,500.

Avoid interest by paying your balance in full and on time

To avoid paying interest, aim to pay your credit card balance in full and on time.

Credit card issuers provide a grace period, which gives you time to pay for your previous month’s purchases without paying interest. Federally regulated financial institutions must provide a minimum 21-day grace period, which begins on the last day of your billing period.2

For example, say you use your credit card to buy a laptop on July 15. On July 31st, you get your July credit card statement, which includes your laptop purchase. With a 21-day grace period, you have until August 21 to pay off your July purchases without interest.

Is a low-interest rate credit card right for you?

Low-interest credit cards make it less expensive to carry a balance from month to month, helping you save more money over time. When you owe less interest, you can redirect money to achieve other financial goals like paying off debt or building your savings. In addition to the benefits listed above, some low-interest credit cards offer rewards or other perks.

To find the low-interest rate credit card that’s right for you, compare multiple card options and carefully review the terms. You may also consider seeking prequalification to get a better sense of whether you might be approved.