Should You Apply For a Credit Card?

With hard times upon us, you are practically guaranteed to have at least one or two of the many credit card offers hitting your mailbox each day. The tough part is being able to make an intelligent decision in the few moments you have before you sign the contract.

Personally, I make it a priority to apply for a credit card and compare the many different plans available before making a decision. I never use a card without carefully weighing the pros and cons and determining if the interest rate is fair. It is also important to understand what will happen if you cannot pay the bill or make the payment when due; otherwise, the consequences can be severe. Learn how to get your credit fixed and spot a good card before applying and you will save yourself a world of problems down the road.

To help you in your decision, here are ten things to look for in a credit card offer.

1. Fees. Many companies do not charge an annual fee, but make up for it by charging a higher interest rate on their cards. Avoid one at all costs.

2. Balance transfer and cash back programs. Although these programs are nice to have and encouraged by all card companies, some charge very high annual fees and very high interest rates to capture these programs and then charge normal monthly fees and/or high interest rates to promote the cards after the intro period. You can easily avoid participating in these programs by switching to another card or by requesting a lower interest rate when you sign up.

3. Rewards programs. Most of the major card companies offer an annual rewards program, usually with a certain percent of cash back on each purchase. If you can afford to pay your balance in full each month, then a rewards program can save you quite a bit in interest expense.

4. Interest rates. Before you sign the credit card agreement, determine what rate of interest you will be paying with the card. The lower the default APR, the better, but beware of introductory teaser APRs as these cards often jump to higher rates during the introductory period. In addition, be aware of how long the introductory period lasts.

5. Minimum payment requirements. Most of the major credit cards have a minimum payment of $20 or 5% of your balance each month. This is not a bill that you want to unmanageably pay. To avoid this scenario, only ever pay the minimum balance needed each month rather than paying all the interest charges (including fees) because you only get paid each month.

6. Grace period. The average American consumer prefers to pay their balances in full each month; therefore, the grace period is there to review if an available balance will cover the balance. If your bill is not paid in full by the due date, you will be charged an interest fee which is defined as the unpaid balance of your unpaid bill multiplied by the applicable APR. Or, if you pay a partial payment, the interest charge will be multiplied by the number of months the payment was not paid for. The faster you pay the balance, the less interest will be over the life of the balance. If you cannot afford to pay in full, take advantage of a reduction in the interest rate each month which may mean paying just pennies on the dollar of the total due, especially if you can pay 1% of the bill.

7. Annual fees. Annual fees and/or service charges can sometimes be associated with all credit cards, but not with all of them. It is common for cards that come with an annual fee to offer similar benefits of everyday cards such as roadside assistance, lost and stolen card reporting and fraud protection. Some cards, such as American Express and its Gold Card for example offer coverage on both Elite and Ultimate lists. Most cards that charge an annual fee charge an annual fee in addition to the regular interest rate, which may increase the amount you pay, depending upon the contract, conditions and provisions of the card. Shop around for the card that best fits your financial needs.

8. Transaction fees. The cost of making a transaction on your card will vary based upon the agreed upon amount, the method of payment, the type of card you are using (Visa and MasterCard are very common), the card issuer's payment program and the cardholder's credit standing or standing with the creditor. This cost is often stated as a monthly fee, but keep in mind that transactions made on luxury or premium cards is often annually, but this number may be lower depending upon the issuer. Fees for making a cash advance will vary depending upon the card issuer and the cardholder's credit standing. Make sure you know what the late payment fees are should you miss a monthly payment on your card. All credit card companies have the same late payment penalties in place so credit standing must be excellent or excellent.

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