Lesson 3: Exploring the Credit Card Jungle
You’ve got the right idea.
When it comes to credit cards, it’s better to look for long-term savings than short-term rewards. The allure of those discounts will fade long before a fee-bloated balance disappears.
Here are a few things to double-and triple-check when evaluating credit card offers:
- Annual Fee. Some credit cards charge you a fee each year simply for the privilege of having that card—whether or not you actually use it. Many don’t, so if the one you’re looking at carries an annual fee, consider other options.
- Annual Percentage Rate (APR). Simply put, this is how much it will cost you to carry a balance on your credit card each year. And when it comes to APRs, low (think single digits) is good. High (especially those with rates in the 20s and above) is bad. It’s also better to get a fixed rate. Variable rates can change quickly, meaning you never know how much your credit card balance is costing you.
- Billing Cycle. The number of days in each billing period.
- Credit Limit/Line. This is how much money you’re allowed to spend using your credit card. When you’re just starting out, a lower limit is better, as it keeps you from getting in over your head.
- Fees. There are all sorts of fees in the credit card world. Common charges include cash advance fees, balance transfer fees, late payment penalties, and over-the-limit charges. Make sure you know how much you’ll be paying, and how those fees are calculated.
- Grace Period. This is the length of time you’ll have to pay off your balance each month before interest begins to accrue.