by Denise Campbell Laidler
Credit cards mixed with massive consumer spending are the cornerstone of the highly profitable credit card industry.
Buy now; pay later is the mantra that drives much of American holiday spending. Credit cards mixed with massive consumer spending are the cornerstone of the highly-profitable credit card industry. So it’s no surprise, therefore, that banks continue to inundate consumers with credit card offers, especially during the shopping frenzy of the holiday season.
Here’s some important information that will help you separate the good values from the ripoffs.
The Introductory Rate
Annual Percentage Rate — Fixed vs. Variable
If you don’t pay your balance in full by the due date, you’ll be charged interest on the remaining balance. How much interest you pay is determined by the annual percentage rate (APR) on the card.
A fixed APR locks in your rate so that it does not fluctuate with changes to the prime rate on which it is pegged. The variable APR, on the other hand, moves in step with the prime rate. If conditions are volatile and interest rates spike, the variable APR that originally enticed you can end up bearing little resemblance to what you actually pay. While it’s preferable to have a card with a fixed APR, these cards are few and far between. Currently, the average fixed APR is 13.1% and the average variable APR rate stood at 15.7%.
Cards for Bad Credit
Everyone deserves a second chance; that’s the reasoning behind credit cards targeting those with bad credit. Moreover, in today’s technologically-driven world, it’s becoming increasingly difficult to function by only using cash, which makes a strong case for the ease and convenience of access to a credit card. Additionally, if you have bad credit, but you rack up a good history with these types of cards, you can repair your damaged credit score.
Rewards
Increasingly, credit cards are tied to charges for hotels, rental cars, air travel, grocery and gas purchases. The idea is that the more products and services you purchase, the more “points” you earn in return for free or discounted rewards, offering additional incentive to use the card again and again.
But beware: Many of these incentive-based cards come with high interest rates and big annual fees. However, if their interest rates aren’t excessive and there aren’t a lot of hidden restrictions or fees, reward cards can be a good deal, offering free hotel rooms, bonus rental car use, free airline tickets and more. Nonetheless, make sure it’s worth your while by casting a discriminating eye on the agreement and fine print. For most frequent flyer credit cards, you’ll see high interest rates, blackout dates and restrictions for the privilege of getting miles in return. It’s not worth it and tantamount to paying for overvalued stocks.
Evaluating the Key Areas
If you make a late payment, you will be charged a fee which can run you approximately $35. Avoid cards that impose over-the-limit charges and hidden fees for balance transfer and account termination. Some cards will notify you if you’ve gone over your limit without hitting your wallet with a penalty. Also, beware of fishy interest calculations. There are many ways a card issuer can calculate interest owed. One of the shadiest tricks is to use a late payment as a reason to jettison the interest-free period for new purchase transactions and then calculate the interest as far back as the original purchase date.
But the best way to safeguard against insidious fees is to be your own best advocate. Read the fine print on your credit card statement. If the contract allows the card company to get away with either of these schemes, cancel your card and find one that only charges interest from the date the new statement was produced.
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Source: Black Enterprise
