Whether you're looking to expand your available credit, take out your first credit card, or transfer credit card debt to another card, you will no doubt have plenty of credit card offers from which to choose. Some of them will probably provide the kind of financial help you're looking for, while others may make a mess of your credit if you're not careful. Here are some tips for evaluating credit card offers so the card you pick eventually works for you--and not the other way around.
- Check the interest rate. This is the thing people most typically check when they get a credit card offer, and with good reason. A high interest rate means you can end up paying a lot more than your principal. For instance, I took out a credit account with a computer company and was glad I could make a purchase I could never make in cash. The monthly payments were very low and so was the price of the PC. Great deal, I thought. However, once I started making those great low payments, I noticed the company's interest rate of around 30%. That's insane! Thanks to the interest rate--and many months when I could only make the minimum payment--I will have paid about $400 dollars on top of the original price for this computer. Convenient? Yes. Affordable? At the time. Overall a "great deal?" Not at all. Before you take any credit card company up on its offer, learn how much you will be charged in addition to what you actually spend.
Also, note that a lot of credit cards have separate rates for cash advances. I personally have vowed never to take out cash on a credit card ever again--the rates are just too high. However, sometimes, you need to do it. Just be sure you know the kind of rate you're dealing with. Same goes for balance transfers--read the fine print or check with customer service to see which rates apply.
In short, look for a fixed (permanent) low interest rate when evaluating a card.
- Be aware of the rate-hiking policy. When and why does this credit card change your interest rate? Is this a special low introductory rate that gets upped in six months or a year? Or is it fixed? Or does it depend on your paying your bill on time every month? If the fine print regarding that question is a little too much legalese for you, give the company a call and have their customer service people help you out. You can do things to keep your interest rate low, sometimes. Other times, there's a deal in place where you will get a higher rate once a certain time frame passes. Know what you're getting into before you sign up.
- Check the repayment terms. As I just said, some low interest rates, even the fixed ones, will be hiked once you miss your monthly payment. Hiked a lot in some cases. Make sure you know how much missing a payment will cost you. Also, look into two other places where you can run into trouble: late fees and over limit fees. These also can cost you a lot.
Here's another real-life example. Like most people, I try to pay my credit cards on time, every time. But when circumstances prevent that, I have ended up paying some hefty fees for being even a day late. Instead of noticing my interest rate went up, I instead noticed a sizable late fee on my bill. In some cases, the late fee put me over my credit limit, which in turn, landed me with an over limit fee. Instead of owing $35 one month, I'd owe, say $75. And if you're having trouble making minimum payments, it's probably not the time you can handle extra charges. I know I couldn't. Getting out of debt becomes harder as these charges add up quickly and, again, make that great credit card not so great. So along with finding out how missing payments or going over your limit may affect your interest rate, check what the fees are, too. Again, ask the card's customer service to help you out if the jargon is daunting.
- Check the balance transfer fees. One great reason to get a new credit card is to transfer a balance from a high interest account to one where you have a low introductory rate. I did this once, and it was a breath of fresh financial air. Instead of making no headway with an over limit card where I could barely make the monthly payment and was mainly paying interest, I was suddenly paying off principal on a very low rate card. Be careful though, because this isn't always free. When I made the switch, I had to do it then and there when I signed on with the card over the phone. Otherwise, they were going to charge me for the transfer. The rushed nature of the transfer made the card a little less friendly for me, but, financially, it still was a great deal. So, before you accept a card's great balance transfer deal, make sure you know if there are any fees attached and if there's any difference in the interest rate they charge.
- Check the annual fee. Many a time I have found a great credit card offer in the mail--low fixed rate, room to transfer a balance. "Pre-approved" they tell me. Great. Then I look at the stats on the included documents: $50 annual fee, $75 annual fee, $90 annual fee. If you're not on a fixed income, it might not be a big deal to have this once-yearly charge stuck on your credit card bill, all other things being equal. But if you're like me, and counting your pennies, a new credit card that starts you off owing them money before you even buy anything? I take a pass. Check the annual fee before you sign on to any card.
- Consider the credit limit. Credit card offers are great at advertising. You, pre-approved customer X could get (up to) $5000 in credit. Great! Well, wait a second, what's this "up to" part. Not everyone who signs up for a card, even us "pre-approved" people are going to get the maximum credit offered. Sometimes, if you have poor credit, you can expect the lower end of the limit spectrum. On the other hand, some credit cards might surprise you. They want your money, so they're willing to extend you a larger limit. You may be able to talk to the card company before you sign on and ask what your limit might be. Or you can usually talk to a customer service representative about extending your limit once you have a card. Remember that there may be a waiting period before this is possible.
Despite the bad rap they get sometimes these days, credit cards can be very useful tools offering their users financial flexibility and increased spending power. Making a credit card work for you begins with being smart about picking the right plan for your needs. Then, of course, it's all about using that card wisely.