Did you know that the average American has around $5,313 in credit card debt? With the increasing popularity of applying for credit cards, it’s no surprise that most of us are accustomed to carrying a balance each month.
What you may not realize is that, while the majority of people use variable-rate credit cards for purchases, a fixed-rate card can sometimes make it easier to understand and pay off your debt.
If you’ve never seen these cards before, you’re not alone; they’re not widely available. They may, however, be the best option for you if you prefer to simplify your credit card usage. Here’s what you need to know about fixed-rate credit cards.
What Is a Fixed-Rate Credit Card?
First things first: what’s the difference between a fixed- and variable-APR credit card? As their names suggest, the answer has to do with how and when your interest rates change. Just as you’d consider the interest rates when taking out a car loan, it’s important to consider how a card’s interest rates will impact your future payments.
With a credit card that has a variable rate, your interest rate will fluctuate. These changes depend on market index rates. They can also change based on your credit issuer’s policies as well as economic factors like inflation.
With a credit card that has a fixed rate, your interest rate remains the same. That doesn’t mean that the rate can never change, but there are legal limitations on when and how your issuer can change it.
The interest rate of fixed-rate cards is locked for your first year. Afterward, your card issuer can change the rate as long as they provide written notice 45 days in advance. Factors that can prompt a rate change include a credit score drop, late payments, and similar factors.
Compared to variable-rate cards, fixed-rate credit cards are rare. Following the CARD Act of 2009, which made it harder for credit card issuers to change the fixed rates, many issuers don’t offer them.
Why Should You Consider One?
Fixed-rate credit cards aren’t for everyone, but they can be helpful in some situations.
If you don’t often carry a balance on your card and have no credit debt, finding a fixed-rate card won’t be worth it. The right variable-rate cards can sometimes offer lower interest rates anyway, as you won’t be paying a premium to have a stable rate.
On the other hand, if you do accrue credit card debt from time to time, fixed-rate cards can be attractive. The right card locks you into lower interest rates and thus lower monthly payments while you’re paying off debt. This can be especially helpful if you’re worried about rising interest rates in general.
It’s also a great tool if you want to simplify your interest rates. While variable-rate cards make it hard to understand how much interest you’ll have to pay off, you can calculate the monthly payments of a fixed-rate card anytime with simple math.
Choose the Right Credit Card
At the end of the day, the best credit card is the one you feel you can comfortably pay off. A fixed-rate credit card may be your best bet in certain situations, but it’s always important to read the fine print from your card issuer to learn whether it’s the right choice for your needs.
As you search for financial services with competitive rates, don’t forget that FiCare Federal Credit Union is proud to help residents of Tampa, Florida, and the surrounding areas. From credit cards to financial planning, our experienced team does it all. To learn more, contact us today.