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| When
you make a purchase on your credit card, consider it
a loan. A loan? You
bet. It's how you repay that loan that determines
whether or not the
card will cost you an arm and a leg. Example: If your credit limit is $4,000 and you buy $500 worth of merchandise, you have $3,500 left. When you repay the $500---where you may incur interest charges---you again have $4,000 available in credit. As you use the card, you're constantly borrowing against your limit and repaying the money. If you pay off your balance in full each month, no interest charges will accrue. Therefore, you should select a credit card that has no annual fee. It won't matter what the APR (annual percentage rate) is because you pay off your balance in full each month. If, however, you don't pay off your balance in full each month, you're what the credit card companies call a "revolver"---a person who rolls part of the bill over to the next month. Nearly 7 out of 10 cardholders do this. In 1996, for example, the average amount they roll over every month is $3,900. Is there a drawback to not paying off your balance in full? Sure, but the banks and other credit card outfits want you to do this as they ring up the receipts in interest charges. If you paid off your bill in full each month, they wouldn't make a dime. But not paying off your bill in full each month can cost you plenty. A cardholder with a balance of $3,000 pays 17.5 percent interest. If he or she made only a minimum monthly payment of 2 percent of the unpaid balance, or a minimum $10---which many card issuers permit---it would take more than 33 years to pay the card off. Even worse, the total interest would come to $6,658.36. All for a $3,000 loan! In addition to interest charges, credit card issuers also assess late fees and high rates on cash advances. Late fees are usually estimated at 2 percent of your outstanding balance if you don't make at least a minimum payment by the due date shown on the bill. Cash advance fees typically don't allow a grace period and tend to have a higher interest rate. Thinking about an Auto Loan? Home Equity? Any bank product? We give you unbiased rates for your area at bankrate.com. |