Interest rates

How a 0% APR Credit Card Can Help as Interest Rates Continue to Rise

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Over the past few months, talk of raising Federal Reserve interest rates has been in the headlines. The central bank raised rates in March for the first time in more than three years, and another hike was announced on Wednesday. Each of these rate hikes means that any variable interest rate debt will become more and more expensive to have.

Anything related to student loans, car loans, mortgages and credit cards – the latter which has notoriously high interest rates – will be affected by the announcement. And with revolving consumer credit debt hitting $1 trillion in February according to the Fed Consumer Credit Reportconsumers will pay millions more in interest and fees.

To sum up, the average credit card debt is around $4,700. And with an average interest rate of 14.56%, it would take someone almost six years to pay it off if you pay $100 a month, plus $2,303 in interest charges.

The good news is that there is an easy way to avoid paying interest on credit cards, as well as strategies to pay off your debt fast.

Select details of what you need to know about rising interest rates and how to use a 0% intro APR credit card to your advantage.

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How rising interest rates can hurt your portfolio

The headlines around interest rates usually refer to mortgages, because even a slight increase in a mortgage’s APR can mean paying tens of thousands of dollars more in interest over time. However, higher credit card interest rates also hurt and can be a recurring budget killer.

For example, if you have the Chase Sapphire Preferred® Card, your interest rate is 16.24% – 23.24% variable on purchases. Even at the lower interest rate of 16.24% with a balance of $5,000 and a monthly payment of $300, you’ll earn over $700 in interest over 20 months. If your interest rate increases by 2 points, the total interest you will pay will be more than $800.

Select recommends that you don’t spend more than you have and always pay your credit card balance on time and in full to avoid interest and late fees. But sometimes consumers may not have enough money to pay their entire statement balance or need to finance a large but essential purchase.

And with the rising cost of living, every dollar leaving your wallet for unnecessary spending hurts even more. So, instead of paying interest to your credit card issuer, you might consider using a 0% introductory APR credit card to pay off your main balance and avoid racking up more credit card fees. interest.

How to Maximize a 0% Intro APR Credit Card

You can use a 0% intro APR credit card in two ways, including making purchases directly on the card or make a balance transfer from one card to another.

Last tax season, I used the Capital One SavorOne Cash Rewards credit card to pay my tax bill. However, I wanted to spread the payments over time and luckily the card had an introductory APR offer of 0% for the first 15 months after opening the account, then 15.24% – 25.24% variable APR per the following. Therefore, I did not have to pay interest charges because I made payments on time. Also, I was able to earn the welcome bonus along the way.

Using one of these cards can therefore be a great strategy when you have major purchases to finance, but it’s important to make sure you have a plan for paying off your credit card debt. Otherwise, it can be a slippery slope to new debt.

Here’s how you can use a 0% introductory credit card to your advantage.

0% Intro APR Card for New Purchases

For example, if you know you have a big purchase coming up, maybe a new iPhone or a kitchen renovation, you might consider using a card like the Wells Fargo Active Cash® Card. It offers 0% introductory APR on new purchases for the first 15 months of card membership (15.24% to 25.24% variable APR thereafter). This means you can pay off your purchase in 15 months without accruing interest.

Wells Fargo Active Cash® Card

On the Wells Fargo secure site

  • Awards

    Unlimited cash rewards of 2% on purchases

  • welcome bonus

    $200 cash rewards bonus after spending $1,000 on purchases in the first 3 months

  • Annual subscription

  • Introduction AVR

    0% intro APR for 15 months from account opening on eligible purchases and balance transfers; balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    15.24% to 25.24% variable APR on purchases and balance transfers

  • Balance Transfer Fee

    3% introductory fee ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)

  • Foreign transaction fees

  • Credit needed

0% Intro APR Card for Balance Transfers

If you have debt that you need to pay off but are incurring interest charges, consider transferring your balance to a card like the Citi® Diamond Preferred® Card. It gives you an intro APR of 0% for 21 months on balance transfers from the date of the first transfer (13.99% – 23.99% variable thereafter). However, keep in mind that you will have to pay a 5% fee to transfer your balance from another card to this one.

While it often makes sense to pay a balance transfer fee if you have a high amount of credit card debt, you’ll want to run the numbers before initiating a balance transfer to make sure the fee you’re paying are less than what you would pay in interest.

Citi® Diamond Preferred® Card

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

  • Balance Transfer Fee

    5% of each balance transfer; $5 minimum

  • Foreign transaction fees

  • Credit needed

Advantages

  • No annual fee
  • Balances can be transferred within 4 months of account opening
  • One of the longest introductory periods for balance transfers

The inconvenients

  • 3% foreign transaction fee

At the end of the line

In recent months, the focus has been on interest rates for homes, but with more than 180 million Americans currently holding a credit card, interest rate changes also affect the plastic of your wallet. . Although it may be a good idea to keep low-interest debt prioritize investing, credit card debt is never a good thing to have. However, a 0% intro APR credit card is a solid way to consolidate credit card debt and/or avoid interest charges altogether.

If you currently have credit card debt, especially with looming rumors of an impending recession, it pays to eliminate your high-interest debt as soon as possible. Plus, make sure your emergency fund is fully funded to protect you in case of unexpected expenses.

Information about the Capital One SavorOne Cash Rewards credit card was independently collected by Select and was not reviewed or provided by the card issuer prior to publication.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.