A Low Rate Fix For The Credit Card Junkie

You won a handsome discount on a new General Motors car, chalked up enough frequent-flier points to claim a free plane ticket, and raked in gas rebates galore. But after enjoying the rewards of co-branded credit cards, you have to pay off those big balances that earned you the freebies in the first place.

Problem is, such cards charge among the highest interest rates on revolving debt--18% on average. Savvy consumers can dodge steep rates by transferring balances to cards that offer low introductory rates, but many people "are tired of playing the teaser game," says Beverly Wells, president of Wachovia Bank Card Services. Such come-ons boast rates of around 9% for the first six months, at which point the regular 18%--or more--kicks in.

GOOD DEAL. A better option might be one of the permanent low-rate cards being offered by a growing number of issuers. Although such cards usually carry an annual fee, they can be a good deal for credit junkies who want to slash interest costs and pay down their debt faster.

One of the newest products is the Prime for Life card from Atlanta-based Wachovia. Its annual percentage rate is always the same as the prime rate, currently 8.75%. Despite a hefty annual fee of $88, Wells claims that "this is a very attractive card for consumers with significant revolving balances" of at least $1,000 a month. For those with less debt, Wachovia offers an alternative, for $28 a year, with a rate of prime plus 3.9%.

While low-rate cards have been around for some time, they were marketed primarily by small regional banks. "Now, you can actually get a low-rate card from a bank you've heard of," says Pat Hudson, president of Porges & Hudson, San Francisco-based credit-card consultants. PNC Bank, in Pittsburgh, just launched its Prime Value card, available nationwide at a permanent rate of prime plus 3.75%.

That's not to say you shouldn't look around for local deals. Cincinnati-based Star Banc recently issued Star Prime, with a rate equal to the prime and an annual fee of $45 for the standard, $55 for the gold. It is available only in Ohio and eight neighboring states.

The new low-rate plastic comes with higher credit limits than earlier offerings. Most issuers grant opening credit lines of $3,500 on a standard card, compared with $1,500 a few years ago. And, "you no longer need an exceptionally low debt level to obtain a low-rate card," says Keith Coughey, vice-president of PNC Bank Card Services.

In choosing a card, "look for the lowest interest rate from the biggest bank," says Robert McKinley, president of RAM Research Group, which publishes CardTrak, a monthly guide to the best deals. With a big bank, you have a better chance of eligibility and some assurance the issuer can sustain long-term low pricing. You can order CardTrak, at $5 an issue, by calling 800 344-7714.

You also want to know on which index issuers base rates. A growing number, such as First USA Bank and Banc One, use a Treasury-bill index or the London Interbank Offered Rate (LIBOR). Because it is hard to follow how these fluctuate, cardholders can easily lose track of when their rate changes, or how much interest they are paying.

INTEREST TRAP. Also check how interest is calculated. Most banks base the rate for revolving debt on the average daily balance (ADB) for the month. Avoid cards that employ two-cycle billing. Under this method, any unpaid interest from the last month's charges is added to the interest due on the ADB over the new period. First USA's low-cost cards and Dean Witter's Discover card both work on the two-cycle system.

If you switch to a low-rate card, don't splurge just because you are paying less interest. RAM Research's McKinley suggests that revolvers keep their card debt under control by paying off a minimum of 5% to 10% of their balance every month. In the long run, with some discipline, you could save enough in interest charges to pay for the plane tickets and other goodies you were receiving on the more expensive cards.

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