Sure there are cheap credit cards out there. However, a cheap credit card could mean a number of things. It could mean a card with a low interest rate or a card that has few fees associated with its use. Most of the monetary costs associated with a credit card are really controlled by the credit card holder. The user of the credit card decides how “cheap” the credit card really is.
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Credit cards are good financial tools to have in case of emergencies and for expensive purchases. However, many credit cards have high fees and interest rates associated with their use. Credit cards make it very easy to get into financial debt, and they should be used wisely.
What costs and fees are associated with a credit card?
To begin with, most credit cards charge interest. Interest is a certain percentage of the amount owed that must be paid to the credit card company. Interest charges are one of the ways that credit card companies make money from lending it through credit cards. For instance, if you charge $100 dollars on a credit card that has a 5% interest rate, then you will have to pay an extra $5.00 along with the $100 for the purchase.
Some cards have zero percent interest or very low interest rate to begin with. Most cards that have low introductory interest rates only have those rates for a short period.
Other fees charged by credit card companies could be annual fees, membership fees or participation fees. They could also charge monthly fees, cash-advance fees or balance-transfer fees. According to the Credit CARD Act of 2009, credit card companies must limit certain fees and post all agreements on the credit card company’s website.
How can the credit card holder control the interest of a credit card?
First, a consumer who wants an inexpensive, low-interest credit card needs to be responsible for his or her financial obligations. This involves paying bills on time and living within financial means. A credit card company looks at a person’s credit report to determine how financially responsible the person in. Those with good bill payments on their credit reports will qualify for low interest rates; those with overdue payments or bill that have gone to collection will only qualify for very high interest rates.
Excluding emergencies, if an individual lives within his or her financial means, then a credit card will only be used to buy what that person can immediately afford. Most credit card companies have a grace payment period that allows consumers to pay for their charges without being charged interest. So being able to immediately pay for the purchases put on a credit card will lower interest charges, making the card more inexpensive.
How can the credit card user control the cost of a credit card?
A credit card user can control the overall cost of a credit card by using it a little as possible. On average, most Americans have about $9,000 in credit card debt with a 13% interest rate. The Federal Reserve’s Credit Card Repayment Calculator estimates that it would take 26 years to pay the $9,000 balance off making only the minimum monthly payments of $180. It would also cost an extra $9,903 in interest rate charges.
Additionally, many of those great-sounding, low-interest introductory offers go right out the window once a payment is late; some even start charging interest upwards of 20% if a payment is overdue.
How can the consumer control credit card fees?
Using credit cards in a limited manner is the best way to make them truly “cheap.” The best way to control credit card fees is either to avoid the types of transactions that have associated fees or not use credit cards that have high fees.
Some fees can’t be avoided, such as annual fees, but balance transfer fees and cash-advance fees can’t be charged if you don’t use those types of transactions.
Furthermore, comparing credit cards and choosing those with the fewest fees is the best way to tell credit card companies that you won’t pay such fees. If enough consumers refused to use credit cards with high fees, then the companies would change their policies.
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