The Cost of a Credit Card
"Too many open lines of credit can impair your ability
to apply for the best rates, and could cause some issuers
to declare you a high-risk account and charge you a much
higher interest rate."
- Lorayne Fiorillo, author of
Financial Fitness in 45 Days
When it comes down to how much it's going to cost you to
use a credit card, the following are the primary expenses
you should consider:
Teaser Rate
This is the initial interest rate charged for the first 6
months or so that you own the card. It's how a creditor schmoozes
you into transferring all of your debt onto its card. Since
it's highly unlikely you'll be able to pay off all that debt
by the time the teaser rate ends, you may wind up paying a
lot more in interest at your new rate than you would have
if you'd just kept your debts where they were.
High Annual Fees
With the credit industry as competitive as it is now, you
can usually find a card that doesn't charge an annual fee.
Most people who choose to pay an annual fee do so to take
advantage of other perks, such as a high or nonexistent credit
limit or generous frequent flyer mile allocations.
To help you evaluate annual fees, use our Lower
Rate vs. Annual Fee Tool.
Penalty Interest
This is the fee charged whenever you make late payments or
exceed your credit limit. Creditors aren't required to specify
when they will impose penalty rates, which can run as high
as 30%. Be sure to ask questions up front if you anticipate
running into these kinds of problems.
Grace Period
Some credit cards give you a 25-day or so grace period before
charging interest on a new purchase. Others start charging
interest on the day you make your purchase--so it can save
you money to find out the card's terms first.
Cash Advances
It's nice to know you can get cash from your credit card whenever
you need it, but be aware that many cards charge higher interest
rates on cash advances.
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