The other day I received a letter in the mail that wanted me to apply for a certain credit card. There were a lot of bright numbers advertising the “low” interest rate of about 12% for the card. When I opened it, the card’s interest rate was everywhere just in case I forgot what the envelope said. It wasn’t until I sifted through all the pamphlets when I discovered that the card actually had a pretty decent rewards program (2% – 3% cash back in select categories). The cash back rates, however, were written in very small font as almost an afterthought. That got me wondering, why would an interest rate be the selling point of a credit card rather than the rewards? I concluded that this type of advertisement was catering to people who choose to never pay their credit card bills off in full every month. To them, that 12% must seem very good compared to the rates that get to 20% or higher. I was horrified that this particular credit card company thought it was more important to put its interest rate as a selling point before its rewards. But it got me thinking, I have never really looked at what a credit card’s interest rate is when applying for a new card. To me, that interest rate does not matter one bit. I couldn’t even tell you what my cards’ interest rates are but I could rattle off all their rewards without hesitation. In fact, the interest rate could be 100% or 200% and I wouldn’t care as long as it got me a high cash back return. Why? Because I make sure I pay my credit card bills off in full every month and therefore never accrue a cent of interest each month. This is why I don’t care how high a credit card’s interest rate is and neither should you!
Don’t get lulled into thinking you can slip on a few payments because of the “low” interest rate since this will start the descent down a very slippery slope. The minute you start paying interest on your credit card, months or even years of cash back rewards are erased. I can only think of a few select scenarios where you should care about what a credit card’s interest rate is. The main exception is if the interest rate is 0% over a period of time where you can pay a large amount of money without the interest accruing. This can be a good option, but you have to make sure the full balance is paid off before the interest starts kicking in after the 0% period has ended. Many credit cards offer some kind of 0% interest promotion during the account’s first year which is generally the only time someone can take advantage of that 0% interest rate. Many store branded cards also offer different options where there is no interest if the full balance is paid off over the course of six or more months. Zero should be the only number you accept when it comes to credit card interest rates.
While there are a small number of scenarios where utilizing a 0% interest rate can be useful, you should never consider letting your balances accrue interest. If you can’t pay back a purchase when the bill will be due, wait an extra month or so and then make that purchase to ensure you don’t accrue any interest. Also, try not to focus on things like the interest rate when looking for your next credit card. A good credit card, in my opinion, shouldn’t be defined by its interest rate but rather by its rewards.