Credit Cards You Should AvoidMarch 31, 2011 - 8:00 am
Credit cards are a product, just like a tv or a car. Like all other products, there are good cards and bad cards. Before you apply for a credit card, know that there are some cards you should always avoid.
Credit Cards With High Interest Rates
The credit card interest rate has a direct impact on the price you pay for carrying a high balance. You can typically expect to pay interest on balances you don’t pay in full before the grace period, but you don’t have to pay enormously high interest rates. When you’re looking for a card, take a look at the average interest rate.
Currently, the average rate is around 14%. Stay away from cards with interest rates that are high above the average. If you have to get a card with a high interest rate, e.g. when you don’t qualify for a low rate card, make sure you pay your balance in full every month.
Credit Cards With No Grace Period
The grace period is the amount of time you have to pay your balance in full before a finance charge is added to your balance. If your credit card doesn’t have a grace period, then you’ll start being charged interest immediately. You won’t have a chance to avoid paying interest on your charges. Note that most credit cards don’t have a grace period for cash advances or purchases made when you already have a credit card balance, so that’s normal. However, it’s not normal for new purchases when you started the billing period with a $0 balance.
Credit Cards With High Fees
Ideally, you want a credit card that gives you the ability to avoid fees. For example, nearly all credit cards have late fees and returned check fees, but you don’t have to pay those fees if you use your credit card right. On the other hand, credit card annual fees are harder to avoid if the credit card already charges one. If you pick a credit card with an annual fee, make sure that credit card has some benefit that warrants a high fee.
Rewards Cards With Minimum Spending Requirements
Make sure you read the fine print of rewards credit cards that offer lucrative rewards. The credit card may require you to spend a certain amount before you can earn rewards at the higher rate. In the meantime, you’ll earn rewards at a very low rate, if you earn any rewards at all. For example, one credit card rewards 1% cashback on purchases after you’ve charged $3,000. Before that you’d only earn .25%. A deal like that isn’t so bad when there’s no annual fee on the credit card, but if you’re paying an annual fee and earning paltry rewards, it’s not really a good deal.
Choosing a Credit Card
Always read the fine print of credit cards to understand what you’re paying and if you’re really receiving the advertised benefits. Compare credit cards to each other to get a feel for which credit cards are the better ones.