If you're one of the millions of homeowners who have refinanced their mortgages, don't call the engravers just yet. If you're still paying last year's interest rates on your credit card, you'll have to wait on your Fool Refi Trophy.
Rock-bottom mortgage rates have helped countless homeowners pay down their mortgages years earlier. Low rates on credit cards can help you do the same. By transferring your balance to a low-interest-rate credit card, you're essentially refinancing your debt. (If you doubt the impact of a few percentage points, just do the math with this calculator. It's an eye opener.)
While mortgage and credit card debt are not created equal in our eyes (the former is an appreciating asset, the latter nearly always involves depreciating ones), a debt's a debt all the same. In fact, it may be more important to seek a lower interest rate on your credit cards than your home. After all, that stuff you've put on your credit card has most likely already been eaten, worn, broken, or given away. Why continue to pay interest on fleeting memories?
If you are trying to pay off a balance, look for a card that offers a "teaser" rate (or "special" rate, "promotional" rate, "limited-time-only" rate). That's simply the Very Special Interest Rate the lender is offering at that time. As with most teasers, there are time limits involved.
Look for the lowest rate: Find a lender offering a low introductory interest rate (a "teaser" rate) that lasts at least six months. (Hey, we've got one at 0% with The Motley Fool Visa!) If you can find -- and qualify for -- a low teaser rate that lasts an entire year, huzzah!
Find the longest running rate: If it is likely to take you a while to pay off your balance, it's worth finding the lowest rate you can for the longest period of time. The business of rate hopping is complicated. The less you have to apply for new credit, open new accounts, transfer balances, and close old accounts, the more simple your finances (and your credit record) will be.
Teaser and introductory rates come in both fixed- and variable-rate flavors. Which one is best? It mostly depends on the interest-rate outlook. Yeah, we know -- you don't want to get a degree in economics just to pick a credit card. (Check out our own primer, Interest Rates 101.) So here are a few rules of thumb:
1) If rates are low and probably headed higher, then a fixed rate is the better choice. A fixed-rate card is also safer if interest rates are volatile -- moving up and down quickly.
2) If rates are high and the outlook is for improvement in rates, then go with a variable rate to take advantage of the forecasted drop in rates.
One caveat: Even the most attractive interest rate offers -- fixed, fixed-for-life, or variable -- can go by the wayside. Lenders are legally required to give you just 15 days notice of a rate change; however, most will give you a 30-day notice. So pay your debt off with fervor (use our free Get Out of Debt Guide for some hand-holding), and let us know when you're victorious. We'll put your trophy in the mail.
