Sure, credit cards are a big convenience. And while most look similar, they come with different interest charges, credit limits and other fees. As such, it’s makes good financial sense to choose credit cards wisely.
The following are some crucial issues to consider before getting a credit card.
Interest Charges of Credit Cards
Interest rates for credit cards can range from anything between 12% and 20%. No frill credit cards charge lower interest while those with lots of supposed benefits come with higher interest. Those who intend to pay off their credit card bill in full at the end of each month can opt for a card with a 55-day interest-free period. Not disciplined enough to do that? Find a card with a low interest rate then. And ideally, forget about getting an expensive store card.
Credit Card Fees
The biggest fee will be the annual fee, which may be as low as $40 a year for a standard card or more than $200 for a premium card. Some credit card providers waive the first year’s fees to get new customers. Others waive annual fee upon request from credit card holders if they spend up to a certain amount of money using the card within a year or if they have bought other financial products with the credit card provider or bank.
Annual fees aside, there are many other fees that lurk around. These may include:
- Credit card surcharge. These are fees that merchants charge their customers when customers use credit cards to make purchases. This is usually a small percentage of the purchase price.
- Late payment fee. These are charged when the card holder pays his bill after the due date. It may cost an extra $30 to $40. Read the credit card bill statement and note the pay by date to avoid a late payment fee.
- Over limit fee. Some credit cards allow holders to continue using the cards even after they have reached their credit limit. While this may be convenient, it can result in an over limit fee costing from $30 to $50 a month.
- Cash advance fee. Cash advances from credit cards cost higher interest, don’t usually allow an interest-free period and may also charge a fee on its own. Avoid using cash advances unless absolutely necessary.
- Foreign currency conversion fee. Those who shop online from overseas merchants should be aware that some credit card providers will charge them a fee each time currency is converted during the transaction. Big Amazon and eBay users or frequent overseas travelers should look for credit cards that waive foreign currency conversion fees.
Credit or Spending Limits
Credit card limit, which can be anything from $1000 to $150,000, is often given based on annual gross income and credit score. High income earners often have credit cards with more spending limits. But the higher the limit, the higher the annual fee as well. To curb unnecessary spending, perhaps it’s best to ask for a lower credit limit.
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