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.

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.