Comparing Credit Card Finance Charges

Transcription

1 Comparig Credit Card Fiace Charges

2 Comparig Credit Card Fiace Charges Decidig if a particular credit card is right for you ivolves uderstadig what it costs ad what it offers you i retur. To determie how much a credit card costs, you should uderstad how the fiace charge is calculated, as well as what fees you might icur. Evaluatig what a card offers ivolves assessig the beefits it makes available ad the likelihood you ll use them. WHAT YOU PAY VERSUS WHAT YOU GET: CREDIT CARD FINANCE CHARGES Put simply, the fiace charge is the dollar cost of usig credit. Most of the total fiace charge may be the iterest you pay o outstadig balaces, but it also icludes various fees you may icur. Iterest rates The iterest rate o a credit card, expressed as the aual percetage rate (APR), determies the amout you ll pay the card issuer for the privilege of borrowig moey ad carryig a outstadig balace. The card issuer establishes the APR ad must disclose it to you o both the credit applicatio ad o the statemet you receive each billig cycle (geerally each moth). You re usually charged iterest oly if you carry a upaid balace o your accout from oe billig cycle to the ext. (Cash advaces ca be a exceptio to this rule. You may be charged iterest o a cash advace from the momet you receive the moey, eve if you pay back the etire advace at the ed of the billig cycle.) Iterest o ay upaid balace is added to your outstadig balace each billig cycle. You must be otified i writig at least 45 days prior to ay chage i the APR. The APR may oly be chaged if (1) the idex o which the rate is based chages, (2) it is a promotioal rate that has expired, (3) you have failed to comply with a hardship workout pla or (4) your accout falls 60 days past due. The APR for a credit card may be either fixed or variable. A variable APR may chage frequetly, sice it is ofte liked to a major ecoomic idex. To arrive at the APR, the issuer adds a certai umber of percetage poits (the margi) to the idex. Your iterest rate will vary as the idex rate varies. If the issuer chages either a fixed or variable APR, you must be give a opportuity to either accept the ew rate or cacel your credit card. Such cacellatio caot be cosidered a default o the accout or trigger a immediate obligatio to repay the accout i full. You may be charged differet APRs at differet times or for differet portios of your total balace. Credit card issuers ofte offer a low iterest rate for the first 3-12 moths your accout is ope. Called the itroductory or teaser rate, it s desiged to attract ew cardholders. After the ed of the itroductory period, the iterest rate icreases to the issuer s regular rate. You may also be charged oe iterest rate for balaces you ve trasferred to the card, a secod rate for ew purchases ad a third (ad geerally higher) iterest rate o cash advaces. If you make a paymet greater tha your miimum mothly paymet due, the credit card issuer must apply ay amout above the miimum due to the portio of the balace with the highest APR. Fially, you may be charged a higher pealty rate if you re 60 days or more late i makig your paymets. If your rate is icreased for this reaso, you must be iformed that the rate icrease will be termiated (ad the rate restored to what it was before the icrease) oce you have made timely miimum paymets for six moths. Whe the issuer computes your fiace charge, the card s APR is coverted to a periodic rate, which is the iterest rate you re charged for each billig cycle. For example, if the APR is 18% ad you re billed mothly, the periodic rate will be 1.5%, or 18% divided by 12 moths. (Differet APRs for differet portios of your balace will result i differet periodic rates applied to those portios.) Your fiace charge for the billig cycle will be the outstadig balace multiplied by the periodic rate. 2 ATLANTICTRUST.COM

3 Comparig Credit Card Fiace Charges Calculatio of the outstadig balace Credit card compaies use various methods to calculate the outstadig balace used to determie your fiace charge. The most commo calculatio methods are listed below, with the methods that result i the lowest fiace charges listed first, followed by those that result i higher charges. Adjusted balace: The balace outstadig at the begiig of the billig cycle mius all paymets ad credits (e.g., for retured merchadise) made durig that cycle. This method of calculatio is ofte the most advatageous for cosumers. Average daily balace excludig ew purchases: The total of the outstadig balaces for each day of the billig cycle divided by the total umber of days i the cycle. Paymets ad credits made durig the cycle are deducted ad ew purchases made durig the cycle are ot icluded. Previous balace: The begiig balace for the billig cycle. This balace does t iclude ew purchases made durig the cycle, but it also is t reduced by ay paymets or credits made durig that cycle. Average daily balace icludig ew purchases: This method is similar to the average daily balace method described above, but ew purchases made durig the cycle are icluded whe calculatig the daily balaces for the billig cycle. If you look for cards that figure fiace charges o adjusted balaces or average daily balaces that exclude ew purchases, you ll be gettig the most favorable calculatio rate. If you always carry a large balace, though, you ll be payig a lot of iterest o matter how the fiace charge is calculated. factor you should cosider. Depedig o the type of card you have, how you use it ad your paymet record, you may ecouter other fees that will add to the total cost. Aual fees May credit card issuers charge a aual membership or participatio fee. This fee may be miimal for most cards, but it ca be as high as several hudred dollars, particularly for some travel cards. You ll have to decide if the beefits offered by the card issuer are worth the aual fee you ll pay for them. If you icur o iterest charges because you pay off your balace every moth, the aual fee may be your oly fiace charge. If you re offered a card with o aual fee, read the fie prit. I some cases, the aual fee is waived oly for your first year of membership or if you charge a substatial amout. You may be able to egotiate your aual fee o a idividual basis. If you call the credit card issuer, it may lower your aual fee to keep your accout. Trasactio fees The credit card issuer may charge you separate fees for a wide variety of trasactios. These fees must be set forth i the cardholder agreemet you receive whe your applicatio for the card is accepted. Here are some of the most commo trasactio fees: Cash advace fees: These fees are usually several percetage poits of the amout advaced, or a miimum amout, whichever is greater. Balace trasfer fees: If you trasfer aother accout s balace to your credit card, the issuer may charge you a fee equivalet to several percetage poits of the trasferred balace, up to a certai maximum amout. CREDIT CARD FEES While the iterest you pay may be the largest portio of the fiace charge associated with a credit card, it s ot the oly Foreig currecy surcharge: If you make a purchase i a foreig currecy, some card issuers will charge you a ATLANTICTRUST.COM 3

4 Comparig Credit Card Fiace Charges percetage of the purchase price as a fee to process the trasactio. they are t, they become part of the ew outstadig balace used to calculate the fiace charge for the ext billig cycle. Duplicatio ad replacemet fees: You may be charged separate fees for duplicate billig statemets, photocopies of trasactio slips ad/or replacemets of lost cards. Closed accout fees: A credit card issuer may charge you to close your accout, particularly if you do so before a miimum stated time has passed. Pealty fees If your credit card paymet posts to your accout after the due date specified o your billig statemet (which must be o the same date each moth), you ll probably be charged a late paymet fee. (If the due date falls o a weeked or holiday, your paymet must be credited without pealty o the ext busiess day.) Geerally, this fee will be a fixed amout, but the amout may vary depedig o the size of your balace (larger balaces geerate larger late fees). If you re late makig a mothly paymet more tha oce withi a specified time (usually 12 moths), the late paymet fee may become higher still. Credit card issuers are prohibited from authorizig a trasactio that will cause your balace to go over your credit limit uless you authorize the trasactio opt-i orally, electroically or i writig. If you exceed the credit limit o your card, you ll be charged a over-the-limit fee. This fee is for a predetermied fixed amout. You may be charged a over-the-limit fee oly oce for each billig cycle ad may ot be charged this fee agai i a subsequet billig cycle uless you agai obtai a additioal extesio beyod your credit limit. All fiace charges geerally must be paid by the due date for the billig period i which they re added to your accout. If Cautio: Failure to make at least the required miimum paymet by the due date for each billig cycle ca result i your accout becomig deliquet. Not oly will this icrease your costs, but it may also blemish your credit history. CREDIT CARD BENEFITS By far, the largest beefit offered by a credit card is coveiet ad flexible borrowig power. But all credit cards offer that, so what other beefits might be importat to you? Additioal credit card beefits usually take the form of rewards or services. Reward A card issuer may reward you for usig your card by offerig credit toward merchadise or services, or cash back. Travel cards may give you frequet flier miles you ca exchage for free airlie tickets or hotel accommodatios. Cobraded cards offer discouts o purchases you make from merchats who have etered ito partership agreemets with the card issuer. Issuers of affiity cards doate a small percetage of your outstadig balace to a oprofit orgaizatio affiliated with the card. Some card issuers credit your accout (cosequetly reducig your outstadig balace) with cash back for usig the card. While these rewards ca be attractive, you usually have to sped a lot to get a little. Frequet flier miles might pay for your daughter s ext sprig break o a tropical beach, but you ll have to travel extesively before she ca eve get out of tow. Discouts with merchat parters o a cobraded card might help you save moey, but oly if you shop frequetly with those merchats ayway. Your direct doatio to your favorite charity might give the charity more tha it would receive from a small percetage of your credit 4 ATLANTICTRUST.COM

5 Comparig Credit Card Fiace Charges card use, ad you ll get to claim the direct doatio as a deductio o your tax retur. The rewards offered by credit card issuers are t free, either. I most cases, their cost to the issuer is covered by higher fiace charges. You ll eed to determie if the value of the rewards you expect to receive exceeds the additioal iterest ad fees you may eed to pay to get them. Whe you evaluate a credit card offer, the most importat factors to cosider are usually the APR ad the fee structure. Be particularly careful to avoid lettig the glitter of additioal services, especially those you may rarely use, blid you to their hidde costs. Other services Most issuers of credit cards offer certai services you may fid useful. Some services are free (although the cost of providig them may be reflected i the card s iterest rate ad fee structure), while other optios may be provided for additioal fees. Amog the commo services offered are the followig: A toll-free customer service telephoe umber. Represetatives may be available 24 hours a day, 7 days a week. Olie accout maagemet. Card issuer websites allow you to review your statemets ad make paymets over the Iteret. Itemized periodic statemets. These statemets ca help you track your expeses. Some card issuers also provide aual trasactio reports that ca help you idetify tax-deductible expeses. Credit isurace. If you re uemployed ad/or disabled, this isurace covers your miimum mothly paymets. Recourse agaist merchats for usatisfactory purchases. I some circumstaces, your credit card issuer may help you resolve a dispute with a merchat or reverse a charge for defective or udelivered merchadise. Travel assistace. Travel card issuers may help you make airlie ad hotel reservatios, provide free travelers checks ad check cashig services, or offer travel isurace. Some eve admit you to VIP louges at airport termials. ATLANTICTRUST.COM 5

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