Home > 2012 > Credit Cards > How to Understand the Costs of Your Credit Card

How to Understand the Costs of Your Credit Card

Advertiser Disclosure Comments 0 Comments

These days, numerous Americans are now receiving significantly increased offers for new credit cards, and in larger volumes. Many may enter into these agreements, though, without carefully considering exactly how much this type of borrowing will cost them in the end.

Credit card offers are now coming with extremely attractive terms. Many offer significant rewards programs, or perhaps extremely low introductory interest rates that last for more than a year. And while those offers may be extremely generous and can be beneficial in certain ways, it’s also important for potential borrowers to carefully consider the other costs involved in opening such an account.

For example, one of the most important aspects to think about is how much of an interest rate you can expect to pay, either immediately after opening the card or once the introductory period expires. This will help to clarify exactly how much borrowers can expect to pay in interest charges if and when they carry a balance from one month to the next. And if that’s higher than what they currently pay for their existing credit cards, or would be more than the amount they earn in rewards points, it might be a better idea to look at other, similar offers that can be more affordable.

The same is true of annual fees, which are most common with rewards cards. These can cost $50, $100 or more every year, which can be difficult to manage unless borrowers are spending enough on their account annually to cover the added cost. Otherwise, they might end up paying for the privilege of earning rewards points, miles or cash back.

There are other fees to consider as well, such as penalty interest rates or fees that may be applied to an account in the event of a missed payment. These can be quite costly, even if the payment is just a day late. Penalty fees can also be applied for exceeding a credit limit.

[Credit Cards: Research and compare credit cards at Credit.com.]

Finally, borrowers who obtain a credit card with a low or even zero-percent introductory interest rate will want to consider the transfer fee they face for moving an existing balance to the new account. Typically, this is around 3 percent of the total amount of debt being transferred, and must be properly planned for to understand the full cost.

Image: Anthrocopy, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.