Why You Shouldn’t Care About Credit Card Interest Rates

The other day I had an interesting conversation with a friend about the types of credit cards that we carry.  When I mentioned that I use the PC MasterCard for all of my monthly purchases my friend said that he didn’t like that credit card because the interest rate was too high.

I found this to be an odd statement because I know this person doesn’t carry a balance on his credit card.  So why would he care about credit card interest rates?  When I asked him this question he couldn’t really give me a good answer other than it was a psychological comfort knowing that if he ever had to pay interest on his credit card balance he would be paying a lower rate.

Low Credit Card Interest Rates

First of all, if you do carry a credit card balance from month-to-month than of course you should find a credit card with a low interest rate.  There is a big difference in monthly payments between a 19% interest rate and a 5.99% interest rate.  However there are a few problems that I have with low interest rate credit cards:

Introductory Offer – There are many credit cards that offer an introductory low rate or interest-free balance transfer for a certain period of time (usually from 3 to 12 months).  You’ve likely seen them all the time in the mail.  If you have a high credit card balance and are paying a high interest rate, these offers can save you quite a bit of money in the short term.

The problem is that if you haven’t paid off your balance in full by the time the introductory offer expires, you may be faced with higher interest rates than you were paying before you switched.  Some people can also be drawn into a false sense of security during these interest-free periods and end up charging even more money on their credit card.

If you don’t carry a balance on your credit card, these offers are useless.  Why bother with an introductory offer and a low interest rate when you don’t pay any interest to begin with?

Great Rate with Annual Fee – Most low interest rate credit cards fall into this category.  For the privilege of getting 5 – 10% off of the standard credit card interest rates you must shell out an annual fee of up to $79.  Again, if you carry a balance on your credit card from month-to-month, these types of credit cards can save you hundreds of dollars in interest.

The problem with these types of cards is that the credit card interest rates are still considerably higher than an interest-free or low interest introductory offer.  And if you don’t carry a balance then you are paying an annual fee for nothing, as most of these credit cards offer no perks or rewards.

My wife paid off her TD Emerald VISA card a few years ago and just uses it now for a recurring monthly subscription to maintain some credit history.  We forgot about the annual fee for two years in a row!

Find a Credit Card that Pays You

When consumer debt is no longer an issue for you and your finances are under control, it’s time to find a credit card that will reward you just for using it regularly.  There are plenty of credit card rewards to choose from depending on what interests you.

• Travel Points, Aeroplan miles and AirMiles rewards
• Groceries, Gas and Merchandise
• Vehicles
• Cash rebates

All of these credit cards have something in common.  They all have super high credit card interest rates, some as high as 30%.  The reason they have such high interest rates is that for the most part the people who are taking advantage of these credit card rewards aren’t paying any interest at all, they are paying off their balances in full each month.  If you slip up one month, you’re going to pay for it – big time!

Forget the Interest Rate

As you can see, there is literally a credit card for everyone depending on their unique situation.  When you reach the point in your life where you will never pay another cent of credit card interest again, you should look into a no-fee rewards card that will put money back in your pocket each month.

So the next time someone asks to compare, “What’s in your wallet?” remember that the lowest interest rate does not mean the best credit card.  When you think about it, who really cares about credit card interest rates anyway?