Credit Card Details

I am frequently asked what the difference is between a variable rate and a fixed rate credit card, so let's set it straight. When you sign up for a credit card, you'll notice it offers either a fixed interest rate or a variable interest rate. A variable rate card is directly tied to an index, usually the Prime Rate index. So, when the Prime Rate rises by x%, the interest rate of a variable rate card subsequently rises by x% within one month.

A fixed rate card, however, is not tied directly to the Prime Rate. So, when the Prime Rate fluctuates, the interest rate of a fixed rate card usually stays the same. Now, there is the misconception that fixed rate credit cards will have a constant interest rate that remains the same all the time. Don't be fooled. There is no such thing as a truly fixed rate card. Even fixed rate cards increase their rates at times with, some with short notice. Also, be aware that fixed rate cards can and sometimes do change to variable rate cards.

So, which one is for you? You need to take two main factors into account. First, what is the current Prime Lending Rate; and second, what are the chances of the percentage rate plus Prime Lending Rate going above the fixed rate? Keep in mind that if you can stay disciplined and pay your balance each month there is no need to be concerned with the interest rate at all. But, if you are trying to get out of debt, this rate carries remarkable consequences so consider your current financial situation as well before deciding which credit card is for you.