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Low interest credit cards
introductory interest rates on transferred balances and new purchases for a set period of time. This can work out quite well for someone who carries a balance on a card that is at a higher interest rate. Before you do anything, though, check out the fine print when applying for a credit card with low interest rates. Once the introductory period has ended, the interest rate will go up. It is your job to know just how high and if any penalties are attached. It is important to remember that what you owe is compounded – that means you pay interest on the interest you owe from the month before. That means that if you're paying 2% per month in interest, you're not paying 24% per year – you're actually paying 26.82%. Charging interest monthly instead of yearly is a trick to make it feel like you are paying a very low price for your borrowing. Here's a question: would you rather have $1 million, or $10,000 in a savings account earning 20% per year in compound interest? Well, let's see how that $10,000 would grow. After 10 years: $61,917. 20 years: $383,375. 30 years: $2,373,763. 40 years: $91,004,381. 50 years: $563,475,143. So after fifty years, you'd have over $500 million?! Well, not so fast. Of course, you have to take inflation into account – if we say inflation is 5%, then that money would have the buying power that $10,732,859 does today. Still, that's not a bad return on your investment of $10,000, is it? That's the power of compound interest, and the way the credit card companies make their money. Be very, very careful of compound interest. Or, of course, you could start saving, and be very glad of it...
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