A credit card is a major financial tool in the wallets of most Americans. They are used for emergencies, high price items, utility bills, vacations, and necessities such as groceries and gasoline. Most people would like to get the most bang for their buck when it comes to credit cards, so it is no wonder that many seek out the cheapest credit cards. While the cheapest credit cards come with low fees and minimal interest rates, credit card users themselves have a lot to do with how cheap credit cards truly are.
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Credit card users can lower the cost of their credit cards in a number of ways beyond searching for one with fewer fees and a lower interest rate. Any credit card can be expensive if it is mismanaged. Users need to improve and protect their credit scores, manage your credit card debt wisely and stay away from activities that increase the cost of their credit card bill.
Fees that the Cheapest Credit Cards Have
All credit cards have fees; they are one of the main ways that credit card companies make profits from extending credit. However, many credit card fees are avoidable. Common fees that you can avoid are:
- Annual fees. Credit cards charge this fee once a year, but not all do. Find a credit card that has no annual fee.
- Late fees. These fees can be from $20 to $35, so don’t miss a payment.
- Over-the-limit fee. You have to authorize your credit card company to allow your credit card to go over its spending limit. If you don’t want the $35 fee, don’t give the authorization; let your card decline instead.
- Transaction fees for cash advances and balance transfers. These fees charge around 3% of the transaction amount. Don’t use these types of transactions if you want a cheap credit card.
What is a cheap interest rate for a credit card?
The basic moneymaking principle behind all forms of credit is interest. Also referred to as your annual percentage rate (APR), interest rates are the percentages that must be repaid on top of the money that was borrowed.
Your credit card’s interest rate is one of the reasons why your debt can increase so quickly, turning a cheap credit card into a very expensive piece of plastic.
Many credit cards offer promotional, teaser interest rates to get customers to sign up for their cards. Low interest rates such as 1% to 3%, or even 0%, make a credit card appear to be an inexpensive deal. However, that introductory, teaser rate won’t last. While the Credit Card Accountability, Responsibility and Disclosure Act of 2009 ruled that introductory rates must last for at least six months, most low, introductory interest rates do not last beyond 15 billing cycles.
Once the introductory period is up, your credit card will convert to a much higher interest rate. The Federal Reserve lists the average credit card interest rate for late 2011 as 12.4%. That means that you will be responsible for paying $12.40 for every $100 borrowed on your credit card. A cheap interest rate will be one that is below the national average.
Furthermore, most credit cards also have a penalty interest rate that your card converts to if you are late or miss a payment. Penalty interest rates can reach well over 20%, and some cards will never revert to the original interest rate. Paying a penalty interest rate puts your credit card in a category that is light years away from cheap.
Make Credit Cards Cheaper by Improving Your Credit
If your credit is poor, you can forget about cards with no annual fee, low introductory rates, or average APRs. A low credit score will tell credit card companies that you are a risk for nonpayment, and they will only offer you a costly credit card to make up for that risk. To get the best rates and fees you need to have good credit. The most common ways for improving credit are:
- Pay off debt as soon as possible.
- Pay all of your bills on time.
- Remove incorrect or negative information through the proper channels.
- Keep your credit utilization low by never using more than 50% of your existing credit cards’ spending limit.
How do I manage my credit cards wisely?
After reaching a point where your credit gets you the best rates and fees for a credit card, you still have to use that card wisely.
Poor credit card management will always result in high costs.
Using your credit card wisely will help to avoid high fees and costs. Examples of wise use are:
- Save your credit cards for emergencies as much as possible. Credit cards are not for shopping sprees or impulse buys.
- Pay off your balances as soon as possible. If you pay your monthly balance off in full during your card’s grace period for payment, then you won’t pay any interest at all.
- Avoid transactions that have high fees such as cash advances and balance transfers.
- Reviewing your credit card statement every month is also a good idea. Make sure you understand every charge, and don’t hesitate to call your credit card company to get an explanation or dispute an item.
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