Credit Card Guidance

American consumers owe more than $1 trillion in credit card debt, a record high. Paying that debt down can take years and cost thousands in interest.

If you’re stuck with high credit card balances, or you’re planning to open a new card, make sure to avoid borrowing more money than necessary. The following tips can help you make smart credit choices.

Watch for High Interest Rates

Interest rates are also at record highs, and those rates impact interest charges on your debt. Rates can vary by different companies, for different types of cards.

Know your APR. The Annual Percentage Rate (APR) is the interest rate you’ll be charged. For current credit cards, check your statement to see the exact rates you’re paying. For new cards, look for the APR before you apply.
Store cards, or cards offered by a specific company (sports teams, clubs, hotels, and airlines), can have much higher rates than general credit cards. Currently, these types of cards charge 7% to 9% higher rates than general purpose credit cards.
Watch for cards with graded interest rates. These rates go up if you’re carrying a higher balance, costing you even more money.

Beware of "0% Interest" Promotions

Many retail stores try to entice customers to apply for their credit cards with so-called “0% Interest” APRs. These promotions are always time-limited.

Credit cards with 0% APR claims usually defer or delay interest charges. If you haven’t paid off your entire balance by the end of the proportional 0% interest period, you may be charged interest retroactively to the time of your purchase.
Shop around. Banks may offer better options than retail stores for cards that have zero or low introductory rates.

Be Careful with Store Promotions

Often, retailers will dangle sign-up bonuses or discounts to encourage you to apply for one of their cards. Usually, this happens at the cash register or the online cart.

Unless you can pay off the purchase quickly, the discount probably isn’t worth it. Carrying a balance may mean that you will end up paying more in credit card interest than the amount of money you saved at the register.

Save Money to Pay Down Debt

If you already have credit card debt, work to save money while paying down your balance. Here are some tips to chip away at your balances:

Consider a balance transfer. If you have a good credit score, you may be able to transfer the balance from a high-interest card to one with a lower rate. Don’t use the balance transfer card for new purchases, though.
Before you choose a balance transfer, check the period of time you have to pay off the balance. Some cards are meant specifically for balance transfers, and they typically offer 15-18 month periods to pay off your transferred balance.
Balance transfers typically include fees, usually around 3-5% of the transfer amount. Make sure the money you’ll save on the balance transfer is worth paying that fee.
If you don’t want to open a new card to transfer a balance, ask your current credit card company for a lower rate. If you’re a cardholder with a good record of payment over time, some card issuers will consider offering you a lower rate to keep your business. Call the customer service number on your card and ask about preferred lower interest rates.
Look for cash-back options when shopping for a new card. Some cards, including even some store-sponsored cards, have this feature.

While interest rates remain at record highs, try to limit your use of credit cards for everyday purchases if you can’t pay the balance off each month. The convenience of the card may be outweighed by the extra money that a high interest rate will add to the price of your purchase.