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Picking plastic

Credit cards have literally been given out like candy in America in recent years, allowing millions of people to buy easily on credit. Most do not pay too much attention to the plastic they have in their wallet or purse – and that can be a big mistake.

Shopping around for a credit card can save you money on interest and fees, and it will allow you to find a card with features that match your needs. Also, knowing how cards work and reading the fine print on credit card contracts can prevent you running up a mountain of debt that you may struggle to repay.

Bear in mind that credit cards are short-term unsecured loans provided to you by a bank or other lender, and usually carry a substantial interest that can quickly mount up if the full amount is not promptly repaid.

 

The right card

The first step when shopping for a credit card is deciding how you will use it.

If, for example, you expect to pay your monthly bill in full, your best choice will be to opt for a card that has no annual fees and a long grace period – the time between receiving your monthly bill and having to pay for it before interest kicks in – regardless of the interest rate. If, on the other hand, you expect to have to roll your debt over from one month to the next, your best bet will be to look for a card with the lowest possible interest rate. If you want to use it to get money – known as a cash advance – find a card that charges you low fees for cash advances and low interest on the money borrowed.

 

The price of plastic

The best way to determine the cost of a credit card is to look at the APR (Annual Percentage Rate), which will clearly state the annual interest rate for different uses of the card, which is usually higher for cash advances than for purchases.

Some more complex forms of APR exist. Some cards operate under a tiered APR system whereby different rates are applied to different brackets of debt, while a penalty APR might take effect if you are late in making payments. Some card companies also offer an introductory APR, usually a very low or even zero interest rate, to entice people to use the card. Others apply a delayed APR, in which a different – usually higher rate – kicks in at some time in the future.

Also check whether the card has a fixed or variable APR, which can make a considerable difference in how much you have to repay if you run up a long-term debt. If you do, many people use debt consolidation services to keep their bills at an affordable level.

 

Fees and credit limits

Fees are also an important consideration. Though many cards have done away with annual fees, other charges can quickly mount up. Fees for cash advances, balance transfers (when you transfer your debt from one card to another), late-payment fees, over-the-credit-limit fees, credit-limit increase fees and set-up fees are some of the charges to find out about before you accept a card.
For most people, however, their main consideration when taking out a credit card is how much money they can borrow, known as the credit limit. The exact amount will depend largely on your credit history and income, as well as the type of card.

 

Additional features

Many credit cards, especially the high-end cards known as gold or platinum cards, also offer additional features, ranging from rebates on purchases you make or frequent flier miles to travel insurance. Think carefully whether they will be of use to you.