Reading the fine print is important. Are you part of the 61% of Americans who don’t know their interest rate?*
If you are a balance carrying credit card holder your interest rate is a big deal. That little number could cost you hundreds of extra dollars each year. Let’s start with the basics…
What is an interest rate?
In the simplest terms, an interest rate is the price you pay for borrowing money. If you carry a credit card balance you will be charged the interest rate you agreed to. However, if you pay your credit card off each and every month then the interest will not apply.
Am I really paying that much more?
The average credit card rate is 16.16%.** Take a look at yours, is it higher or lower? Now let’s break that number down a bit…
Let’s say that Mary has a balance of $5,000 on her credit card from Appleseed Bank. Her annual percentage rate is 16.16%. Mary decides she will stop spending and pay this credit card off. If she pays $150 each month her card will be paid off in 45 months and she will have paid $1681 in interest!
Now let’s take this same scenario, but Martin has a Sikorsky Credit Union VISA card
with an 8.25% annual percentage rate. He has a balance of $5,000 as well. If Martin pays $150 each month, like Mary, it will take him 38 months and he will only pay an interest of $698.
Martin saves almost $1,000 and pays his credit card off seven months before Mary. See how big of a deal your interest rate can be?
What about rewards?
Rewards are great if you are not someone who carries over a credit card balance. Credit cards that offer rewards typically have a higher rate, but if you pay it off then that’s not a big deal. Review rewards carefully when choosing a card, is the bang really worth the buck? Do the math on the point system, what may seem like a lot of points may not turn out to be much in rewards at the end.
The Bottom Line
A good rule to remember is if you pay off your card every month go for the higher rate card with rewards but if you carry a balance always opt for the lower rate.
Be sure to check out Sikorsky Credit Union’s great VISA card options. We offer a low rate Platinum card and an Advantage option with rewards. If you are trying to show a history of repayment and build your credit score, we have a secure option too. Learn more
Most Americans have at least one credit card, whether they use it for emergencies or on a daily basis. When choosing your credit card it’s important to understand the type of card you are signing up for and that it is the right fit for your needs.