If you’re new to the world of credit cards, you may be wondering how much it can cost you. The answer will depend on the type of card you have and how you use it.
Can you use the card for free or does it require an annual fee? Credit cards also require a monthly minimum payment. If you fail to make it or fall short, you will likely face interest charges or late fees. However, you won’t have to worry about these additional costs if you pay off your balance in full every month.
There are various types of credit cards to choose from depending on your financial situation and personal preferences. You can choose between 0% interest balance, low-interest, rewards, cashback, no-frills cards, and more.
0% interest cards
Let’s begin by looking at 0% interest credit cards. They are designed to help you transfer your high-interest balance(s) from other credit cards to pay them off faster and for less money. You save money because you won’t have to pay any interest for a period of time ranging from 6 to 21 months, depending on the card you choose.
Let’s say you owe $5,000 on two credit cards that have an average APR of 19%. If you were to transfer the balances to a card that doesn’t require you to pay interest for six months, you would have that time to pay down that $5,000 balance before having to start paying interest again.
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Pay off the entire balance every month
If you don’t pay off your entire balance before your promotional period ends, you will likely begin accruing interest. Assuming you can pay your balance down to $3,000 and your interest rate shot up to 18% APR, your card would cost about $40 a month.
While a credit card can be a helpful tool, it shouldn’t be used for frivolous purchases. If you can’t afford something or know you can’t pay the money back on time, don’t buy it. The only exceptions are in case of emergencies.
If you make complete payments at the end of every month, you won’t have to give interest rates a second thought—because you won’t have to pay interest at all.
Watch out for annual fees
If you want to have a “free” credit card, make sure you don’t choose one with an annual fee. The amount varies depending on the card, but they can range from $49 to $550 yearly. If you decide to open an account with a card requiring an annual fee, make sure the benefits you receive exceed the amount you’re paying.
Credit cards with annual fees typically include but are not limited to:
- Rewards cards
- Premium credit cards
- Secured credit cards
Use your card responsibly
Credit card companies have become adept at tempting potential users with offers of cash back, frequent flyer miles and other rewards. While these can be good deals, you should weigh the pros and cons before signing up.
If you’re already juggling multiple credit cards, can you manage one more? How often will you use this new card? If the idea of adding one more seems risky, opening a new account may not be the best idea.
Avoid credit card debt
No matter what the interest rate or rewards are of the credit card you choose, the key is to avoid carrying a balance forward from one month to the next. If you’re not careful, this can easily lead to credit card debt—especially if you’re only making the minimum monthly payment required.
Let’s suppose your credit card debt accumulates to a total of $3,000 and your minimum monthly payment is $100. In this case, it would take you 40 months to pay off that debt – assuming you added no new charges to the card during that time.
Take control of your finances
If you are struggling with credit card debt, you may be eligible for debt relief. A company like National Debt Relief could help you reduce or pay off your balances for less than you owe—and in a shorter amount of time. They can also provide you with tips on healthy spending habits to help you stay on track and avoid debt in the future. Get a free savings estimate here.
National Debt Relief helps people nationwide resolve $10k or more in unsecured debt. Our debt coaches negotiate with creditors on your behalf so that you pay a fraction of what you owe and can become debt free in as little as 24-48 months.
