When Your Credit Card APR Doesn't Matter

And Why You Always Need a Low-APR Card

Benjamin Luthi
Insurance Agent in Provo, UT

Borrowing Credit Cards

When Your Credit Card APR Doesn't Matter
November 6, 2017

Borrowing with a credit card can be expensive if you're not careful. Some cards impose interest with an Annual Percentage Rate (APR) upwards of 30% a year. If you use credit cards responsibly, however, you can take advantage of perks without ever needing to pay interest.

APR is irrelevant if you pay in full

Most major credit cards offer a grace period on purchases. This means that after your monthly statement closes, you'll typically have a few weeks before you have to pay it off. In the meantime, any charges you make on the new month's statement aren't due until a few weeks after that statement closes.

As long as you pay off each monthly statement in full by its due date, you'll never incur interest. If this is your m.o., then choose a credit card based on other features that are important to you, such as cash back and travel rewards.

APR is important if you carry a balance

If you have trouble paying off your balance in full each month, your APR should be a top priority when choosing a card. Rewards credit cards are enticing because of the perks they offer when you use the card. However, most major rewards credit cards come with high interest rates.

If you're paying a high interest rate on debt that carries over each month for the sake of rewards, the costs will almost always outweigh the benefits. Instead, choose a card that has a low APR so you can minimize the monthly damage.


Do you often carry a balance?

Choose a card with a low interest rate

Do you always pay your balance each month in full?

Choose a card with perks you'll utilize

In case of an emergency

Even if you usually pay in full each month to avoid interest, a rainy day can leave you with more debt in a month than you can pay off. The ideal scenario is that you have three to six months' worth of expenses in an emergency fund. But the reality is that, for most people, it can take a long time to get there, and they end up falling back on credit cards to keep them afloat.

If you don't have enough saved in an emergency fund, you might have to rely on a credit card to get you through. That doesn't mean you need to forego a rewards credit card, however.

Have a backup

Miranda Marquit usually favors rewards and sign-up bonuses when choosing an everyday credit card. If something unexpected comes up, however, she turns to her 9.99%-APR backup card.

"I've used it in the past in a pinch when I need immediate liquidity," says the personal finance expert at Student Loan Hero. "I used it after my divorce to help get set up at home."

When she does use the card, Marquit always pays it off within two to three months to avoid ongoing interest charges. She also pays off her regular spending in full each month and recommends prudence with credit cards.

"If you use credit cards, make sure it's in line with your regular budget and planned spending," she says. "You don't want to spend money you haven't planned for."

Use a 0% APR promotion

Joshua Crum doesn't have a low-APR credit card to help him when he's in a bind. Instead, he takes advantage of the 0% APR convenience checks his credit card issuer regularly sends him.

The credit expert at RebuildRepairCredit.com has turned to these promotional checks several times to avoid paying interest. He's run into unexpected new home costs, an emergency C-section birth, and the sudden need for a bigger family vehicle. And each time, Crum has managed to weather each storm interest free.

For him, the key is having a plan to pay off the bill before the promotional period ends. "Eighteen payments are broken down low and easy to pay back within the terms," he says.

There is a small price to pay for this convenience, however. Depending on the offer, these checks can charge up to 5% of the amount of the check, whether you use it for a balance transfer, a purchase or just to write a check to yourself.

For Crum, the price is worth the peace of mind. "We love being able to break down a large expense like that without tapping into cash savings," he says. Some banks do have offers with no fee, but they are rare. Some banks also send them upon request, but there's no guarantee.


Try to have 3 to 6 months' worth of expenses in an emergency fund

If you're strapped, put emergency spending on

  • low-interest credit card
  • credit card convenience checks

Which should you choose?

The best way to use credit cards is to maximize your rewards and avoid paying interest. If you pay off your balance in full each month, get a primary card that has the best rewards for your needs.

But even if you have a robust emergency fund balance, having a backup credit card with a low APR or a 0% APR convenience check gives you more flexibility when something unexpected happens. This is especially the case if the unexpected is a prolonged stint of unemployment or disability that drains your emergency fund.

With this strategy, you can enjoy the benefit of great rewards when times are good, and fall back on the benefit of low interest when times are bad.

If you want more credit, check out MoneyTips' list of credit card offers.

Photo ŠiStockphoto.com/alexialex

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