How much do credit cards cost? If you are like most people, you probably have a credit card or two. You may use it for gas, groceries, or other everyday purchases. But how much does a credit card actually cost?
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It’s no secret that credit cards come with fees. From monthly maintenance fees to penalties for late payments, there are a number of ways that issuers can nickel-and-dime cardholders. But have you ever wondered how much those fees actually add up to?
According to a new study by CompareCards.com, the average credit card holder pays $1,133 in fees every year. That’s more than the average American spends on groceries ($664) or healthcare ($934).
The good news is that there are ways to keep those costs down. By using a cash-back or rewards credit card, for example, you can offset some of the fees you’re paying. And if you have a good credit score, you may be able to qualify for a card with no annual fee.
Still, it’s important to be aware of the potential costs associated with credit card use. Here are some of the most common fees that cardholders pay:
Annual Fee: This is the most common type of fee, and it ranges from $0 to $500 per year. Some cards will waive the fee for the first year, so it’s worth looking for those offers if you’re considering a new card.
Monthly Maintenance Fee: This is a smaller fee that is typically charged every month. It usually ranges from $3 to $10 per month.
Late Payment Fee: If you make a late payment, you can be charged a penalty fee of up to $40. You may also be charged interest on your outstanding balance at a higher rate than normal.
Balance Transfer Fee: If you transfer your balance from one card to another, you will usually be charged a fee of 3% to 5% of the amount transferred. For example, if you transfer a balance of $5,000, you may be charged a fee of $150-$250.
The Cost of Owning a Credit Card
Many people believe that credit cards are free to own, but there are actually a few costs associated with them. For example, you may have to pay an annual fee, a monthly fee, and/or a per-transaction fee. You’ll also have to pay interest on any balances that you carry from month to month. Let’s take a closer look at the costs of owning a credit card.
Most credit cards have variable interest rates, which means that the APR can go up or down over time. The APR is determined by a variety of factors, including the prime rate, your creditworthiness, and the type of card you have. In general, cards with higher APRs will have higher interest rates.
The first cost to consider is the annual fee. Some cards charge an annual fee just for having the card, while others waive the fee if you meet certain requirements such as spending a minimum amount each year. There are also cards that don’t have an annual fee at all. When comparing cards, be sure to factor in the cost of the annual fee to get the true picture of what a card will cost you.
Here are some examples of annual fees:
-Capital One® VentureOne® Rewards Credit Card: $0 intro for first year; $59 after that
-Chase Freedom Unlimited®: $0
-Citi Simplicity® Card – No Late Fees Ever: $0*
Late Payment Fees
If you don’t pay your whole statement balance by the due date, you’ll usually owe a late payment fee. The fee is often around $30, although it can be more or less.
Balance Transfer Fees
Balance transfer fees are common with credit cards, especially if you have a balance on another card that you would like to transfer to your new card. The fee is usually a percentage of the total balance being transferred, and it can be anywhere from 3% to 5%. For example, if you have a $5,000 balance on another card and you want to transfer it to your new card, you may be charged a $150 balance transfer fee (3% of $5,000).
Cash Advance Fees
Most credit cards will charge a fee for cash advances, and the fee is typically a percentage of the amount of the cash advance. For example, if you take out a cash advance of $100, you might be charged a fee of 5%, which would be $5.
In addition to the cash advance fee, you’ll also pay interest on the cash advance from the date it is made until the date it is paid off. The interest rate for cash advances is usually higher than the interest rate for purchases. For example, if your credit card has an APR of 15% for purchases and 20% for cash advances, you’ll pay interest at 20% on any outstanding cash advances from the date they were made until they’re paid in full.
How to Minimize the Cost of Credit Cards
There are many ways to minimize the cost of credit cards. You can pay your balance in full each month, avoid interest charges by paying on time, use a credit card with a lower APR, or transfer your balance to a card with a 0% intro APR. You can also reduce the cost of credit cards by using a rewards credit card to get cash back or points for the things you already spend money on.
Shop for a Card with Low Interest Rates
Interest is the price you pay for using someone else’s money, and credit card companies are in the business of making money. So it shouldn’t come as a surprise that the average credit card interest rate is around 15%.
If you carry a balance on your credit card each month, you’re essentially paying the credit card company to use their money. And the longer it takes you to pay off your balance, the more money they make in interest payments.
That’s why it’s important to shop around for a credit card with low interest rates. The lower the interest rate, the less you’ll have to pay in interest charges each month. And that can save you a lot of money over time.
There are a few things to keep in mind when shopping for a low-interest credit card:
* Look for a card with 0% APR on purchases. This can help you save a lot of money on interest charges if you’re planning to make a large purchase.
* Check for introductory rates. Many cards offer 0% APR for an introductory period, which can be up to 18 months. After that, the APR will typically go up, so be sure to pay off your balance before then.
* Compare rates from different companies. Interest rates can vary greatly from one credit card company to another. So it’s important to compare rates before you apply for a card.
* Consider balance transfer offers. If you have high-interest debt on another credit card, some companies will offer 0% APR on balance transfers for an introductory period. Just be sure to read the fine print before you sign up, as there may be some fees involved.
Pay Your Bill in Full Each Month
If you want to avoid paying interest on your credit card balance, you need to pay your bill in full each month. This may seem like a no-brainer, but it’s worth repeating: paying only the minimum due means you’ll never get out of debt. In fact, making only minimum payments will keep you in debt for a long time—and cost you a lot of money in interest.
Paying your bill in full each month is the best way to avoid interest charges. But if you can’t swing it, there are other ways to minimize the cost of credit cards. Here are a few tips:
-Pay more than the minimum due. Even if you can’t pay your balance in full, paying more than the minimum will help you get out of debt faster and save money on interest charges.
-Know when your grace period ends. Your grace period is the time between when your bill is due and when interest charges begin accruing. If you know when your grace period ends, you can make sure to pay your balance before that date to avoid interest charges.
-Walmart Mastercard®, for example, has a 25-day grace period—which means as long as you pay your balance before the 25th day after your statement is issued, you won’t be charged interest on that balance. But if you wait until after that date to pay, Walmart Mastercard® will charge you interest on the entire balance from the day your statement was issued (not just on the portion of the balance that was unpaid as of the due date). So it’s important to know when your grace period ends and make sure to pay off your balance before that date.
– Take advantage of 0% APR offers. If you have good credit, you may be able to take advantage of 0% APR offers from credit card companies. These offers allow you to finance large purchases interest-free for a set period of time—usually 12 months or more. Just be sure to pay off your balance before the intro period ends, or you’ll be stuck with a high APR going forward.
Avoid Balance Transfers and Cash Advances
Balance transfers and cash advances are generally two of the most expensive ways to use your credit card. If you’re carrying a balance on your credit card, you’ll want to avoid these fees as much as possible.
Balance transfer fees are typically 3% of the amount you’re transferring, and cash advance fees are typically 3% of the amount you’re taking out. In both cases, you’ll also be charged interest on the amount you’re borrowing, so it’s important to pay off any balance transfers or cash advances as quickly as possible.
If you’re struggling to make payments on your credit card, it’s best to contact your card issuer and let them know. They may be able to work with you to create a payment plan that will help you get back on track without incurring any additional fees.
Based on the information above, it appears that credit cards can be quite costly. If you are not careful, you can end up paying hundreds of dollars in fees and interest charges. It is important to do your homework before you apply for a credit card, so that you understand the terms and conditions. Once you have a credit card, be sure to pay your bills on time and keep your balances low to avoid paying high interest charges.