# When Choosing a Credit Card With a Higher APR Makes Sense

One of the most perplexing questions that prospective credit card applicants ask themselves is: should I try for the low-interest credit card or the rewards credit card?

For some consumers, this question is easily answered. For others, it may appear to be a coin toss.

The decision to apply for a credit card is not one to be taken lightly. As the infamous portal to impending debt, irresponsible usage can ruin one’s creditworthiness and cause years of financial hardship.

A common fork in the road for new card applicants includes a path towards low interest rates and a path towards rewards and cash back.

The crowd that never carries a balance would most likely tread towards rewards and cash back. Because credit card issuers do not charge interest when a balance is paid off entirely, this group has the luxury of not worrying about the APR.

## The Safe Route

Cards that offer the opportunity to earn lucrative rewards and cash back usually come with higher APRs.

For example, a credit card might offer 5% cash back on groceries or gas. But, the card has a purchase APR of 19.99%.

Sure, the cash back is attractive but it’s a costly option for anyone who can’t pay off their balance.

You are still going to lose much more money in interest charges.

## Making “Cents”

An example of a scenario often encountered is when a card has a 11.99% APR with no rewards (e.g. Citi Platinum Select) or a card with 12.99% APR with 1% cash back (e.g. Citi Dividend Platinum Select).

The math wizard in us would assume that these cards are essentially equivalent. Of course, they’re not.

On a \$5,000 balance (no further charges) at 11.99% APR and monthly payments of \$200, the balance is paid off in 29 months and \$782 is lost to interest costs.

On the same balance (no further charges) at 12.99% APR and monthly payments of \$200, it’ll take 30 months to clear the balance and \$862 is forfeited to interest costs. Even with the 1% cash back, the net loss is \$812 - a \$30 difference.

The culprit here is compounding, where the interest rate continues to apply to any remaining balance while the cash back is a one-time occurrence.

This difference can be reduced by making larger payments.

Under similar conditions as the above scenarios, at 11.99% APR with monthly payments of \$500, the balance is paid off in 11 months and \$295 paid in interest.

At 12.99% APR with monthly payments of \$500, the balance is paid off in 11 months and \$321 is lost to interest. With the 1% cash back, the net loss is \$271 - actually less than the low-interest card.

However, this example should not be the single justification for choosing the rewards card.

The power to dispel credit card balances at a consistent rate is not within the capabilities of many consumers. If such a financial uncertainty may pose a problem, the low-interest credit card would be the wiser option.

Compare Best Accounts Now