Reducing Credit Card Debt: How to Choose a Low-Interest Offer

When you want to find a find a low-interest credit card deal so you can reduce your credit card debt, first look at offers from your current cards. Occasionally, accounts that carry a zero balance for a long time will prompt the company to offer you no or low interest on balance transfers for a limited time. The time period can vary, but is often up to one year. Rarely will you see a spontaneous interest rate reduction on current balances from your credit card company. Why would a profit-seeking company purposely cut your rates and therefore their bottom line? They wouldn't.

What they will sometimes offer you is a limited-time lower rate on future purchases and transfers from other cards. Don't be tempted to spend by their attempt to squeeze more profit from you. Since one of your goals is to lower your interest rate, you shouldn't transfer other balances to a credit account that already has a balance and high interest rate - you'll have one account with two different rates. Explore other options first. If you later decide that this is the only way you can save a few bucks, do it.

Even though good sense suggests that you shouldn't apply for new cards if you're already in over your head, the opposite is true if you can find a good deal. The pre-approved offers most of us frequently receive in the mail may be just what you need to improve your financial situation. Keep in mind that pre-approval doesn't mean that you will definitely get the card, only that they're offering it.

You still have to fill out the application, which usually has a space to enter balance transfer information. Fill out the information on all cards that you wish to transfer. It's possible that you may not qualify for a credit limit high enough to cover your entire balance. But if you have a $10,000 balance and the company approves an $8000 credit line with no or low interest, take it! You can always work on the remaining $2000 later.

Keep in mind throughout this exercise that you never want to exceed your credit card limit, either with purchases or by balance transfers. Leave at least two to three percent open between your total transferred balance and approved credit limit. Why? When finance charges are added to your balance in time for your next statement it could push the balance over your limit. This may result in additional penalty charges to your account.

After rearranging your balances, close all of your inactive credit card accounts as soon as possible. Potential creditors may decline your credit requests if they decide you have too many active credit lines. Your credit score will take a small hit when you close out some cards, but you'll recover quickly. Before the credit card company bumps up your rate at the end of the offer term, reevaluate your accounts again.

Either in the pre-approval or after-approval paperwork, the fine print will mention that all monthly payments must be made on time. Make sure you do so, or else your interest may be increased to the normal rate, and you'll be charged high late fees, often in the $20-40 range per late payment.

With the overwhelming number of good deals to be found, there's also no reason why you should apply for a card that charges an annual fee. Even though annual fees are usually not high, it's still money that could be used towards your debt reduction plan.

Pre-approved offers are often sprinkled with fringe benefits such as airfare miles, credit protection enrollment, and life insurance. Pay no attention to these marketing ploys, no matter how good they sound. All you should be concerned with in each pre-approved offer is the bottom line - how much money you'll save.

Avoid credit card applications that you find on the counter of your bank or other places of business you frequent. You'll simply be applying for a regular credit card account with no special interest rates or offers of any kind. Stick with pre-approved offers and you'll have a chance to speed up your credit card debt reduction, saving you a lot of money in the long run and helping you breathe easier and lower your stress levels.