Credit card rates are too high to be sensible when you could possibly get into trouble with them. Realistically, any credit card rates over 20% are too high to be sensible if there is any chance that you might ever carry a balance, and for a significant portion of the population, that possibility is very real.
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High credit card rates are manageable for those who never carry a balance on their cards. Yet many people do carry a balance at least occasionally, and these are the ones for whom credit card rates can be too high to be sensible. Some people even find themselves trapped in a situation of the rates continually accumulating and actually increasing their debt. The actual balance becomes harder to pay off because the payments that are being made are simply not bringing the balance down fast enough.
Credit Card Rates are High for a Reason
Essentially credit card companies are in the business of lending money in order to make money. Therefore, they rely on the fact that consumers will use their credit card and will at least sometimes need to carry a balance, and as a result pay the rates imposed by the issuer.
While there are some consumers who wisely pay off their credit card every month and use credit cards without any cost to themselves, many others do not.
In addition, there’s a percentage of individuals who will default on their credit cards. Collections are very expensive for credit card companies. When an individual declares bankruptcy, a credit card company has no recourse for its money. Credit card rates are high to help cover the risk of lending.
Credit Card Rates Can Rise After You Get Your Credit Card
Credit card issuers are wise. Since the big variable with credit cards is the risk of whether a customer is going to default on paying the balance, issuers have put in place penalties for those who may end up in that category. This means that if you are late making a payment or skip a payment, you will find that your interest rate has increased to the penalty interest rate, which is much higher than the standard rate.
Interest rates on credit cards are tied to the prime rate. Right now, the prime rate is near its lowest possible level. At some point, it will rise and with it will come credit card rates. Therefore, even if you get a credit card with a great rate right now, it will likely not always be that way.
You Can Do Something about Credit Card Rates That Are Too High
If you find that your credit card rates are too high, and you struggle to pay off balances or simply hate the cost of using your credit card, take the time to look at the options available to you. Searching for a new credit card with a low interest rate is a great way to get relief from a credit card with an excessively high rate. If you discontinue use of the high rate card and only use the new one, it will continue to be a savings into the future. To help you choose a great new low interest card, consult the J.D. Power and Associates credit card satisfaction study.
An even better option if you have a balance on your high interest rate credit card right now is to look for a lower interest credit card that has an introductory 0% APR offer on balance transfers. Such an opportunity will give you the chance to pay off your balance without accumulating new debt.
Many credit card companies make such offers in order to attract new customers. Just be sure that the standard APR is lower than what you are now paying.
Another option for those with credit card rates that are too high is to use your credit card in conjunction with a line of credit. When you make larger purchases or just run up your credit card balance for any reason, using your personal line of credit is a wise way to pay it off. Typically, a personal line of credit has an interest rate of about 10%, while many credit cards have rates over 20%. Saving yourself half the credit charges is smart, unless you use your credit card excessively again right away.
Whatever you choose to do about the balance on a high interest credit card, make sure you pay down the balance as quickly as possible. Then focus on making it a habit to pay off your credit card balance every month, so that high credit card rates are not a worry for you. For hints on how to get your credit card debt under control, visit MyMoney.gov.
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