What Credit Cards Actually Cost
The real cost of a credit card might surprise you
When people get a credit card, most do not really worry too much about all the possible fees, or assume that the credit card company is always up front. Even if there isn't anything they are trying to hide, somehow many don't realize all the extras that can be charged to your account, until it is too late. No one wants to go into debt, or deeper into debt. So arm yourself with knowledge so you can find out about future credit cards or the ones you already have.
Once you realize all that is involved, you can easily control your credit card costs even if you use the card often. There are all kinds of cards out there. Shop around, and choose one that fits your spending and payment habits to avoid extra charges being applied. No matter what, you will have trouble if you keep your balance up high, and pay only minimum payments. That is a sure way to pay a lot more for things that you got long ago, which is pretty depressing.
What to consider, terms and costs
Make sure to consider at least 3 different costs. Doing this can save you money, which is something we all want to do.
Consider the Finance Charges
Finance charges are the main cost for you using the credit of the card company you choose. These range quite a bit, so don't assume the rate you are being quoted or considering, is just average. These are charged for outstanding balances, along with any cash advances you might take advantage of. Sometimes a bank will charge less during an introductory period, so ask if the percent is long term or for a limited time. If you have a balance due on your card, ongoing, it is probably best to shop around until you find the lowest rate possible.
Consider the Annual Fee
Annual Fees are charges applied once a year. This is for the use of certain cards, so definitely ask about these. Those years sneak up quickly, and the next thing you know you have a larger balance on your bill. There are credit cards out there however, that can guarantee that there will never be an annual fee for as long as you use the card. It makes much more sense to go with one like that.
Grace periods are sometimes called "grace days." This is the time between when you are billed and when your payment is due. Something to watch out for, is that some cards with a low interest rate do charge interest on all purchases from the day they are made. If that is the case with your lower interest rate card (or higher interest rate card, for that matter) then you will definitely want to know. Hate to say it, but they are smart and assume people aren't paying that close of attention, and then they end up getting the money in another way anyway. By the way, the example of interest being charged from the day you made the purchase, can be true EVEN IF you paid off your balance in full last billing cycle. This is definitely something to know about. They want to get you to choose their card, "because it is low interest" only to still get more money from you than you thought. Make sure to read the fine print, and not assume that because you pay on time, or pay in full each month, that there isn't something more going on.
After the big three, finance charges, annual fees and "grace periods", don't forget to ask about over the limit fees, and cash advance fees. Know what your credit line is, because if you go over the limit you will likely pay an over the limit fee. This can happen even if your charge is approved at the time of purchase. People might assume that if they have hit their limit, then their card will just decline. That it not necessarily the case, so ask about this.
Sometimes, there are cash advance fees. In fact if you withdraw cash from an atm machine with your credit card, its very likely you will get a fee. This is especially true if you do it away from your bank, so ask about whether there is a difference in that case.