credit card costs

How Much are Credit Cards Costing You?


24 September,2012

One of the best things you can do for your finances is to be realistic about the cost of credit cards. Unfortunately, too many of us believe that a credit card limit represents “our” money. However, it’s important to realize that credit cards represent money that you are borrowing. Whenever you borrow money it comes with a cost.

Interest Charges and Other Fees

Credit cards are notorious for charging interest and fees. It’s easy to forget how much you areĀ really paying when you use a credit card and carry a balance. All you need, though, is a few minutes with an online credit card calculator to see the damage that can be done to your finances.

The truth is that by the time you pay off your balance, especially if you only pay the minimum each month, you could end up repaying three or four times what you originally borrowed. On top of that, repaying a maxed out credit card using the minimum payment stretches your indebtedness out by years.

The Credit CARD Act of 2009 requires that your credit card issuer let you know the total cost of your debt, and this is a good thing. Check your credit card statement each month. You can see the difference it makes to pay more than minimum; you can save thousands of dollars in interest by paying your balance off as quickly as possible. (The ideal is to use your credit card as part of your regular spending plan and pay it off each month.)

Don’t forget other fees as well. If you don’t track your spending, and you end up going over your limit, you can quickly add to the balance. The same is true when you pay late. These fees are added to your credit card balance, and you pay interest on them. This compounds the expense and the problems. If you don’t have your finances under control, using a credit card is rarely a good idea, since it can end up costing you much, much more in the long run.

Choose a Better Credit Card

If you are unhappy with the fees and interest charged by your credit issuer, you can look for a better credit card. Compare credit card offers so that you can find one that works best for you. If you are trying to get out of debt, it makes sense to look for a card that offers a 0% APR balance transfer. That way, you can consolidate your other balances in a way that saves you money over time.

There are also credit cards out there that allow you to choose your due date, so that your payments aren’t stressing you out due to them falling during a certain time of the month. You are much better off when you have more options. Look for a credit card that comes with lower fees (especially the annual fee), and lower interest if you carry a balance. You want to minimize the cost of credit cards, and instead focus on how you can use them to your advantage.