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Credit Cards
Credit Card Basics
When you're looking for a credit card, be sure to consider the
costs and terms. They can make a difference in how much you pay
for the privilege of borrowing. Compare them with the costs and
terms of the cards you already have to find the plan that best
fits your spending and repayment habits.
Key costs and terms to consider are the annual percentage rate
(APR) for goods and services as well as for cash advances, the
annual fee, and the grace period. Also compare cash-advance fees,
late-payment charges, and over-the-limit fees.
Besides looking at these costs and terms, think about your typical
bill-paying behavior. Do you pay your outstanding balance in full
each month? Or do you usually carry over a balance? Matching the
credit card plan to your needs could save money.
| Terms |
Plan A |
Plan B |
| Average monthly balance |
$2,500 |
$2,500 |
| APR |
x 18% |
x 14% |
| Amount paid in finance
charges annually |
$450 |
$350 |
| Annual fee |
+ $20 |
+ $0 |
| Total cost |
$470 |
$350 |
By switching to a credit card plan with a lower APR and no annual
fee, you could save $120 annually. Of course, this example assumes
that the interest rate is applied to a constant balance of $2,500
and that you make all payments on time; if you paid down some
of the balance each month, the amount paid in finance charges
annually would be less. Also, if you make a payment late, you
may incur additional fees that will increase your cost.
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