The Finance Blogger

Interest Rates on Credit Cards

Interest Rates on Credit CardsInterest rates on credit cards seem to surprise many consumers at just the wrong times. Most people know that the interest rate is higher than most personal loans and that it makes really good sense to pay off the balance each month to avoid these high rates. The reality is that they sneak up on us and suddenly it is the end of the month. The total amount is due at that time, the due date,  if we want to avoid triggering any interest. You cannot even be one day late or they will charge interest on the entire amount for the past month. Always pay on time!

Interest Rates on Credit Cards

Unfortunately we do not have the cash ready to repay the full balance and we resign ourselves that we will have to pay interest on the unpaid balance. This is only part of the bad news. Actually we will have to pay interest on this unpaid balance, plus on anything, we charge to the card in the coming months until the balance is fully paid.

Some cards will hit you even harder. Even though you may have paid some of the amounts that is owed, the interest charged will begin from the time when you first charged these items to your card including what you paid off.  At 18% for regular cards and at 28% for department store credit cards, the interest charges can build up really fast.

There are many credit cards available these days from many different companies. They all have a twist on what they offer. Some will vary the interest rate they offer and even lower it for some temporary period of time. In turn they may charge an annual fee. They may also provide a grace period for any amount of money transferred to them from another credit card.

What Numbers Should We Focus On

The interest rate charged on unpaid balances is really the number that all consumers should focus on. This is the amount of money they are going to take from your pocket when they charge you for that unpaid balance. They also will add a number of other benefits that many people may find attractive, however, if you are unable to make use of these benefits, then they really are not that valuable.

If these benefits are valuable and you are able to take advantage of them while paying the balance off each month, then you may be receiving real value for the card that you applied for and received.

When you are deciding which card to apply for, make a list of the features you are looking for and compare these features to choose the one that makes sense for you. Weigh this decision against the interest rate charged on these credit cards to make your final decision. Most people will give much more weight to the interest rate charged, however as we mentioned, if you have the discipline to repay the credit card each month, your decision may be made based on benefits alone.

What Credit Cards to Avoid

Most people would suggest that credit cards from department stores should be avoided. As we mentioned previously if you have the discipline to repay the balance in full each month, these cards can actually save you money at times.

For example if you purchase furniture and the department store gives you six months free on your credit card from their store, then you may have a really good deal. Again, at the end of six months you really must have the money to repay the balance to avoid really hitting interest rates on these credit cards.

Annual Fees

Don’t forget that some companies also charge annual fees regardless of whether you use the card or not. This charge really increases your effective interest rate whether you have an unpaid balance or not. These cards sometimes have much lower interest rates for their unpaid balances. But then they make up for it by charging an annual fee.

The annual fee can be as low as $30 and as high as $100 or more. This can be substantial for some people. You really have to evaluate whether it is worth it or not to pay these annual fees or not.

Consumers can also have too many credit cards. Sometimes this will negatively impact your credit rating making it more expensive to obtain personal loans and mortgage loans. Before applying for a new credit card give some thought to what the impact will be on your credit rating. Also review the interest rate charged.

For more about credit card interest rates, click here.


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