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, black out 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
Know the interest rate and spend the time to compare fixed and variable APRs. If you think interest rates will remain stable, you might want to opt for the lower variable rate. But remember, that’s a risky choice. If interest rates go up, you lose and you’re stuck with the card. The good news is, thanks to the new credit card laws, card- issuing companies can’t raise rates on existing balances during the first year unless a prior promotional rate expired, the index on a variable index rate increased, or you were 60 days late in paying your bill. If your rate increase as a result of a late payment, the bank is required to restore it to its lower rate once you’ve made six consecutive monthly payments on time.
Be aware of your credit card’s annual fee, which can typically ranges from $15 to $300. Don’t agree to pay more than about $50. If possible, choose a card with no annual fee.
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.
To find the best credit card for you visitÂ www.Bankrate.com or www.CreditCards.com.