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What Credit Cards Actually Cost

Updated on January 31, 2012
An example of an person in prison for debt long ago.
An example of an person in prison for debt long ago.

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.

Scene from a debtor's prison.
Scene from a debtor's prison.

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

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.

Extra Costs

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.


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    • oceansnsunsets profile image

      Paula 6 years ago from The Midwest, USA

      Hello Ben, I agree that restoring one's credit is a good thing to do. Thank you for giving tips like contacting help in doing so, if people need that. Credit agencies and the Federal Trade Commission websites are a great place to start I am sure. I know consumer credit counseling has helped many people.

    • profile image

      Ben Kennedy 6 years ago

      Thanks for your submission. I would also like to comment that the first thing you will need to accomplish is to see if you really need credit restoration. To do that you must get your hands on a duplicate of your credit score. That should really not be difficult, considering that the government necessitates that you are allowed to get one totally free copy of the credit report each year. You just have to consult the right individuals. You can either browse the website owned by the Federal Trade Commission or maybe contact one of the major credit agencies right away.

    • oceansnsunsets profile image

      Paula 7 years ago from The Midwest, USA

      I agree! Thank you for the comment Woman of Courage.

    • Woman Of Courage profile image

      Woman Of Courage 7 years ago

      Very informative hub! It's always good to ask questions. This will save everyone from unnecessary debt. To learn more about credit cards before using them will make life less stressful.

    • oceansnsunsets profile image

      Paula 7 years ago from The Midwest, USA

      Thank you Carolina!

    • carolina muscle profile image

      carolina muscle 7 years ago from Charlotte, North Carolina

      It certainly has become a racket! Nice hub !!!