Essay on Money Management: Low-Interest Rates on Credit Cards Can Be Better Than the Other Loan Options

Introduction

Money management is a broad topic that entails factors like investing, budgeting, spending, and saving. The process also includes monitoring of the way capital is utilized by either an individual or a group of people. Using the credit card literary means that you are borrowing money from the credit card issuer to purchase before paying back the money. IN that case, to let you borrow their money, credit card companies tend to charge interest as well as fees. The interest rates vary from one credit issuer to the other, and they can be even higher compared to other forms of credits such as loans. For instance, the student loan can charge around 5% of the money borrowed, as for the credit card, they can charge more than 25%. The following argument is based on whether there is a possibility of finding a low-interest rate credit card. The following debate is based on whether low-interest rate credit card strategy can make it simple for the user compared to other forms of the loans.

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What Makes Credit Card Have the Low-Interest Rates

Consider a low APR (Annual Percentage rate) that favors low-interest rate: One of the criteria for determining whether the credit card has a higher interest rate or not is by determining its interest rate. The APR (Annual Percentage rate) refers to the interest paid that is payable on the annual basis which is the monthly rate multiplied by 12. While the APR applies to the different balance transfers done, high-interest rates are in incurred when on receives cash advances. It is recommendable for a cardholder to go through the guidelines and the policies regarding the Annual Percentage Rates on the print out given during the issuing of the card (5 Reasons to Apply for a 0% Interest Credit Card | Discover n.p).

A low-interest rate credit card will favor the user who wants to reduce the interest rates: There are two different types of the low-interest credit cards: cards that offer standard low-interest rates and the one that offers 0% introductory rates. In the circumstances that you seek to make a costly purchase that you wish to pay off in the coming months, a card that offers 0% introductory rate is the suitable one since it will help to avert incurring interest on purchase completely. It is important to be aware of when the 0% introductory APR expires and clear the debt off completely before the ARP rises (5 Reasons to Apply for a 0% Interest Credit Card | Discover n.p).

Evaluating the cost of debts regarding issuing equity or taking on debit reduces the expenses in the credit card: Since the interest rate denoted the interest income to the lender, it comprises of the debt to the business and individual. Companies consider assessing the cost of equity against the cost of borrowing, for example, the dividend payments, to decide on the source of fund that seems to be least expensive. When seeking for credit from either issuing equity or taking on debit, it is important to evaluate the cost of the capital to attain the optimal capital structure.

Seek for the card that has low-interest fees or waiver based on the balance transfer and keeping the money in the card for a year or more. If you would wish to save on the interest fee, then consider making the transfer of the balance from the card (with higher interest rates) card that has 0% introductory rate on balance transfer (Rummel et al. n.p). Observed the fees that are applied in making transfers, in most cases, the charges will be around 3% "balance transfer fee," though in some case there would be a card promotion that will waive the fee. In the case where you know that you will want to have your balance to remain intact in the credit card for a year or more, the card with an ARP that is neither based on the promotion period will be the appropriate one for this situation. This will be followed with checking of the local credit card union, the reason being that the credit cards granted to you as one of the credit union members inclined towards having the lower interest rates.

Take advantage of the interest-free period to carry out the expensive transaction that attracts high rates in the normal transactions. It is the best period that no interest is charged on the card (Rummel et al. n.p). Normally an individual is given a grace period of 20 to 55 days. The grace period is what is known as the interest-free period after which failure to pay the amount that is due in full will attract interest that is added to the credit card account. However, some card will give an offer that makes it special since no charge on interest is added to the card even if the balance is not paid in full. The details about the interest rate charged are normally put in the credit agreement to enable one known when the account has added the interest.

Ensure that you consider the best deal with a credit card: For one to get the best deal, there is need to consider several factors. These factors include how to shop for the best deal, comparing credit deals cost, early redemption fee, missed payment fee and late payment fee, understanding of all the conditions and terms that are set on the credit deal and checking on whether the repayment terms are affordable (Nelson 45).

Maintaining a clean credit history will also be a factor to reduce the high-interest rates in the credit cards. Durkin et al. state that, before considering the credit card alternative for borrowing, there is need to have a check on the credit history since with poor credit history one will have to pay more with regards to the interest (78). It means that all the lenders will only offer loans or credit cards with a range of interest rates which varies on individual credit history. Whenever one finds difficulty in getting a credit card, there is the need for checking it out with the credit unions for their credit history ("Socio-History of the Credit Card: We Probably Won't Recognize the Credit Card Field by the End of the Century" 63).

Evaluate and determine on the credit card that had low Credit card fees: According to Ainsworth Credit card holders are required to pay annual fees, and this is in line with most credit card companies (p.38). However, paying the annual fees cannot be compared with the benefits that one gets after uses the card for a whole year. A good example is a person who uses a credit card to pay for travel. Although the cardholder may pay higher annual fees, it is nothing compared to what he or she saves in the scenario where traveling is done extensively. It is advisable for people to do a thorough comparison between different credit cards and see what one can see if he or she uses one and drops another. In the case where a card does not charge an annual fee, then one should go ahead and find out the card that will cause a higher APR. Regarding all that, a card owner should remember that apart from annual fee and APR there are other rates like the ones charge during cash advances and funds transfers.

Consider the purchase interest: No interest is charged on the card in case one pays off all the balance that is owed on the due date. However, the interest may be added to cash advances. In any case that an increase in interest rate takes place on the card one should be given an allowance of 60 days to accept or reject the increment (Yeo and Chun, 23). Whenever one rejects the increase in interest rate, then they should pay off their balance using the existing interest rate. There are two options available for payment of credit card balance that is regular pay off of the balance in full or repays a minimum amount depending on the affordability.

Consider a lower bank personal borrowing as it is a major factor that can increase the interest rates of the credit card: If one needs a personal bank loan, there are going to borrow at the affixed amount which is payable through given tenor which is also known as loan terms (Weliver 71). The loan will be subjected to a fixed rate of interest and includes some extra fees in case loan is secured. Other lenders will provide loans that are having a variable interest rate. It indicates that the loan interest rate will move up and down during the year. It means that the interest rate might increase the general payments thereby making the loan owner to pay the loan over a long period. The repayment is normally done through a direct debit form the loan owner's account and whenever one default or not pay the amount in time they may be charged a fee.

Early loan payment can also lower the interest rates of the credit cards: It allowed for one to pay off the loan at any time before the end of the loan tenor and one is entitled to a refund on loan interest charged. For much information concerning the early repayment, it is advisable that one looks at the credit agreement (Ainsworth 62).

Counter Argument between the Credit Card and the Other Types of Loans Regarding the Interest Rates

Although the reasons given on how low-interest rates can be reduced firm, on the other side, the user of the credit card can have problems in reducing the interest rates. It is established that not all approaches can be applied in one particular type of the credit card. Some of the credit card issuers allow some of the discussed factors to be applied while others do not. Only in the isolated occasion such as during the international holidays or international sports such as the Olympic, Commonwealth Games, and World cup, is when you will see that various promotions support the strategies of reducing the interest rates in the credit card.

As seen for the other form of loans that are provided by the lenders, there are hidden charges that are not surfaced when applying for the loan. There are also many factors that the lender considers before lending which are not applied in the credit card, such as the number of guarantors, us of collateral, as well as interest rates calculation depending on the principle and the time for repayments. The other forms of the loans do not have waivers, promotions or fee exemption strategies compared to the card users.

However, the fluctuation of the international economy, as well as the dollar strength (or any other foreign currency that is available in the credit card), hurts the interest rates of individual cards since these cards are operating internationally (Nelson 47). Furthermore, some of the premium charges in the cards might not adhere to the approaches mentioned above since they are considered to be prestigious, and therefore its usage is quite high, and no strategies to reduce the interest rate can be applied effectively. It is to mean that, despite all the efforts that will be applied to ensure that there are interest rates charged, it is not constantly able to maintain a specific level of low-interest rate throughout the year.

Difference Between Secured and Unsecured Loan

It is important to note that, the personal loan can be secured or unsecured. An example of secured loan is like a mortgage which is secured on the property that is the home itself (Repayment 57). However, the bank can allow other assets like the insurance policy. This security can be realized in case one does not make the payment when they fall due. For the secured loan, there is no risk on the asset that is used as security, but the bank considers court action to force one payback the loan. When one is taking the loan, it is required that comparison is taken to understand what different providers are offering in the market.

Conclusion

In deed, the interest rates can be reduced in the use of the credit cards if necessary measures are implemented. Credit cards interest rates can be viewed to be high in comparison to the other types of the loan selections, though the low-interest credit cards can avert most of the burdens and offer a flexible way off payin...