Unfortunately, as the economy has become more challenging in Canada, many of us have found ourselves in a situation where our credit has suffered. Since unemployment rates have been rising and pay rises have stayed static, our credit may have been climbing as we adjusted to tightening our financial belts. This has created a scenario where a number of us are pushed into a bad credit situation.
If you are someone who is heading towards a bad credit situation but still wants to have access to a credit card, there are still alternatives you may want to consider. For the most part, if you have a credit card it’s best to pay it off in full every month. However, if you are finding it hard to do that, you may want to move to a low interest credit card to minimize your interest payments.
Background on Low Interest Credit Cards
The main reason why individuals sign up for a low interest credit card is because they provide a lower rate of interest than most standard credit cards. This way if you can’t pay or don’t plan on paying your balance off every month, you can save money from the typically high interest fees. In order to understand if these are the right style of credit card for you, you need to understand what you owe now on your credit cards and what your spending patterns are. Many times you won’t get any credit card rewards when you sign up for a low interest card but it does save you money over the long-term.
Low interest credit cards have grown in popularity over the past decade in line with economic challenges in order to maintain demand for credit card products. To be honest, although credit card firms like customers who only pay the minimum payment – since that is how they make their money – low interest cards were an important offering. Since many customers were starting to stop their usage of credit cards, companies like VISA and Mastercard needed to offer an alternative at a lower cost. If these cards hadn’t emerged, cost conscious consumers who were faced with financial difficulties would have likely stopped using cards altogether and reverted to using cash.
Benefits of Low Interest Credit Cards for Bad Credit
For those of us who have bad credit but are still able to secure a small amount, a low interest card can be very beneficial.
First of all, the lower rate of interest helps a cardholder who plans on keeping a balance save money. This low rate may come in the form of an introductory rate so it’s important to pay close attention to the details noted in the cardholder agreement. If you can get a credit card that has a low annual percentage rate (APR) as standard it can help you reduce interest rates from 20-30% down to 2.99% up to 10%.
Second, by obtaining a lower interest credit card you will also be able to pay off your credit card debt faster. This is ideal for individuals who have income that varies month-to-month as you won’t have to face massive penalties over an extensive period of time if you aren’t able to pay your credit card balance in full.
Finally, electing to use low interest credit cards for bad credit can improve your relationship with credit overall. If your interest is lower, your overall balance will be as well. This will help you feel that you are paying more and more off the principal of what you owe. This can help you manage your spending better and get your debts in line with your earnings.
Areas to Consider
If you are searching for a new credit card, always be careful about introductory offers. One should be careful when signing up to low interest credit cards on an introductory rate as you need to ensure that after the introductory period, you’re aware of the rate thereon. You don’t want to find yourself in a situation at the end of the introductory period where you have to find another card with a low rate.
Also, if you are able to pay off your balance in full the majority of the time and have a low interest credit card, you may lose out on obtaining a card that can give you other rewards. These rewards could help you gain discounts at your favourite store, earn reward travel and even get cash back from your purchases at the end of the year.
Finally, many lower interest rate cards also charge you a small annual fee. Although this is most likely not a deal breaker (if you are going to be paying lower ongoing rates of interest) it’s something you should be aware of. Most annual fees are only about $25-50 a year but that is another cost for you to consider before you sign up for one. Since many other higher interest rate cards can be obtained with no annual fee, you’ll need to assess if it’s worth it.
Some Credit Cards to Consider
If you have bad credit and want a lower interest rate, you may want to consider some of the most popular Canadian cards below –
- The Scotiabank ScotiaLine VISA (no annual fee, 3-4% APR depending on prime)
- CapitalOne SmartLine Platinum MasterCard (no annual fee, 5.99% APR until October 2015)
- TD Emerald Visa ($25 annual fee, 4.75% or prime + 1.75%)
- MBNA TrueLine Mastercard (No annual fee, 9.99% APR)
Low interest credit cards can offer you another alternative if you are on the track to bad credit and want a credit card that can help you pay it off faster. By moving your spending to a low interest card at least you will be able to reduce your monthly interest payments so you can pay more off and improve your credit over time.