Cost of Credit Cards

Factors to consider in choosing the best credit card for you. All credit cards are not the same: interest rates, grace periods, minimum amount due and penalty provisions vary. You may be able to save money by making informed choices regarding which credit cards you use to make purchases, and cash advances, as well as how much -- and when -- to pay on balances owed.The cost of your credit card is spelled out in your agreement and in the terms and conditions on the back of your monthly statement.

Most people don't bother with the fine print, but if they did, here's what they would find. There's more to the cost of a credit card than the annual fee and the interest rate on your unpaid balances. Equally important are the grace period -- the time between your purchase and when you have to pay to avoid finance charges -- and how the interest is actually computed.

Some banks that charge low interest rates have no grace period. This means that you start paying interest from the day you make your purchases -- even if you pay your bill on time. And that interest can add up pretty quickly. On many cards, even if your balance is as low as $15, you have to pay a minimum finance charge of 50 cents. That's a whopping annual interest rate of 40 percent!

In addition to the annual fee and interest charges, companies may charge extra fees for special situations. For example, if you exceed your credit line, the bank may charge an over limit fee. If your minimum payment is overdue, there's often a late fee as well. The clear trend in recent years has been to increase the amount of these fees: late payment and overlimit fees of $30 or $39 are now common.

• You will need to carry a balance. Some people are certain that they will be able to pay off their charge bills each and every month. If you are not one of them, then the best card for you would be a low-interest card. Getting one percent "cash back" on your purchases might be nice, but if you pay an extra five percent interest on your purchases, you are spending more than you are getting.
• You may not always be able to make the payments on time. If you financial picture is such that you stand a good chance of having late payments, make sure to carefully evaluate the late payment terms and conditions. A late payment will cost you in fees, with some cards, it could also cost you in a higher minimum payment or even an increased interest rate.
• You will pay off your balance each month. Being able to pay off your balance each month means that you have the greatest variety of options. For you, a "rewards card" or a "cash back" card might make sense--particularly if the rewards are for items/services that you want or if you can apply them to reduce your payments. However, even in this situation, make sure that you select a card that allows a grace period for new purchases. As noted above, you don't want to start paying interest from the day of purchase.

Example An internet search for credit card comparison will turn up numerous web sites that let you quickly compare terms on a wide variety of cards. Many of these sites exist to "match" you to an ideal card, but you can use them to educate yourself without completing any applications on the websites.

Know your credit cards, and save money. In order to best use some of the strategies discussed, you will need to compile some rather detailed information on each charge and credit card that you own. Although it may seem tedious to do so, you should list all of the following information for each card. (Remember, MasterCard and VISA cards issued by different credit companies can have different terms, therefore each should be listed separately.) Here's the information to retain:

• general information:
  • type of card (VISA, MasterCard, etc.)
  • card number
  • name, address, and telephone number of issuing financial institution
  • expiration date of card
• interest rate payable on account balances
• grace period
• yearly fee (if any)
• due date to make payments
• credit limit/available credit (separate limits may apply to purchases and cash advances)
• minimum monthly payment (computed as percentage of existing balance)
• over-limit penalty
• late payment penalty (and date when it applies)

Compiling this information will not only allow you to possibly use some of the money saving tips below, but will also serve as a database of information to needed in case one or more of your credit cards is lost or stolen.

Warning Although you should have the general information about your credit cards where you can quickly and conveniently obtain it, be careful where you keep it. This information, if it falls into the wrong hands, would make it easy for credit fraud thieves to make purchases, cash advances, and set up fraudulent accounts in your name. If you keep it at home, it should probably be kept in a locked hideaway. Then, if your home falls victim to burglars--an all too frequent occurrence in many areas--you'll at least cut the chances of them being also being able to cause more trouble using your credit information.