The Pros and Cons of Using a Low-Interest Credit Card for Debt Consolidation

If you’re dealing with high-interest debt, a low-interest credit card may provide an effective way to consolidate your debt and help you pay less interest.   

A low-interest credit card offers a lower annual percentage rate (APR) compared to a standard credit card. For instance, a standard credit card in Canada might have an interest rate of 20%, whereas a low-interest credit card may offer an interest rate of 14%. Some also offer a 0% introductory APR for a certain period of time. A lower interest rate can help reduce the cost associated with carrying a balance from month to month.  

Here’s what you should know about the benefits and challenges of using a low-interest credit card for debt consolidation.  

How to use a low-interest credit card for debt consolidation  

Debt consolidation means combining multiple debts into a single payment. You can do this by using a low-interest credit card to pay off several high-interest debts.  

Step one is to qualify. Try to find a card that offers a high enough credit limit to cover the debts you want to consolidate. Then you can use your new card to pay off your other high-interest credit card debts, up to your credit limit. Ideally, you want to find a card that offers a 0% introductory APR on balance transfers. This way, you have several months to pay off your debt without accruing more interest. Some cards may even offer a first-year waiver on the annual fee, which may make it even less expensive to consolidate. 

Even if you can’t pay off all of your debt during the 0% introductory period, you can still save money on interest thanks to the card’s lower interest rate and fee waiver, if your card offers it.  

Consolidating your debt may also help simplify debt repayment. Instead of having to juggle multiple payment dates and different interest rates, you only have to make one payment.   

How do I choose the best low-interest credit card for me? 

When trying to decide which card is best for your needs, consider these factors:  

• APR: Ideally, you want to find the card that offers the lowest APR to help you save more money.   
• Annual fees: Many lower-rate credit cards charge an annual fee, so do the math to make sure you’re still getting a good deal. Depending on your situation, a low-interest, low-fee credit card may still make more sense than a no-fee, high-interest card. 
• Balance transfer fees: A balance transfer fee is a charge associated with transferring debt to your credit card. It typically ranges from 1% to 5% of the amount you transfer. For example, if you transfer $10,000 with a 1% transfer fee, it will cost $100.  
• Introductory offers: Look for a card that offers a 0% introductory APR on balance transfers. The more debt you can pay off during the introductory period, the more you can save on interest. Some cards also offer first-year fee waivers, which can help you save even more. 
• Eligibility criteria: Research various cards to see which ones you qualify for. Many low-interest credit cards require a good to excellent credit score.  

Benefits and challenges of consolidating debt 

With any financial decision, you want to weigh the pros and cons. Here are some key issues to consider when consolidating your debt: 

Pros: 

Saving money: Consolidating high-interest debt can help you save money on interest payments. You can maximize this benefit if you find a low-interest credit card that offers a 0% introductory rate on balance transfers.  

Simplified payments: Consolidating debt allows you to focus on one monthly payment instead of multiple payments—sometimes to multiple financial institutions—with different interest rates and due dates.  

Faster debt repayment: Having a lower interest rate means more of your payments go toward your principal instead of interest.  

Cons: 

Overspending: If you have trouble managing your spending, debt consolidation won’t fix this problem. You’ll have to take steps to address the root cause of your spending.   

Growing debt: If you continue using your high-interest credit cards once you consolidate, you may continue to accumulate more debt. That may not be totally avoidable, but it’s smart to keep a close eye on your spending.  

Credit card fees: Make sure you’re aware of the fees associated with consolidating your debt. Calculate the cost of annual credit card fees and transfer fees versus how much you can save with a lower interest rate.   

Is a low-interest credit card right for me? 

If you’re carrying high-interest debt, consolidating may reduce the amount of interest you pay and simplify your debt repayment process. Having a strong credit score will increase your chances of getting approved for a low-interest card and help you improve your financial habits.  

Media Contact Information

Name: Sonakshi Murze

Job Title: Manager

Email: [email protected]