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What is the best way to compare credit cards
When comparing credit cards many people think the credit card with the lowest interest rate is the best one to have as you will be paying less interest per month if you do not pay back the monthly balance in full. This is probably true most of the time however when you want to compare credit cards you should take into account the fees, such as the annual account holding fee, balance transfer fee (if you do take up a balance transfer offer), late minimum payments and various other fees that can be found in the product disclosure statement (the document that lists all the features, rules, terms and conditions of the product) for any credit card you apply for.
Let’s do an example where a high interest credit card can actually be better then a low interest card. Card A has an annual interest rate of 15% with no annual fee and Card B has a rate of 10% with an annual fee of $80 ($6.7 per month). Now after a month of spending (you spent $1000) you could not pay the full balance of $1000 on the due date and only pay the minimum required (usually around 2%) so $20, so now you are owing $980. If you don’t pay any of this back until the next due date then on Card A you will owe $12.39 (interest) + $980 = $992.39. On Card B you will owe $8.26 (interest) + $980 + $6.7 (the annual fee divided by 12) = $994.96. So you owe more on Card B even though it has a much lower interest rate, you can see how an annual fee can be killer so it is better to compare credit cards with a low interest rate and a low or zero annual fee.
Then you have to compare late payment fees, if you are the type of person who is not that organized and miss your minimum payment dates sometimes then you would be wise to choose a card that has the lowest fee for a late payment, this type of fee can be a real killer and you can be paying more than the interest rate! Some late payments are around $30! Note that this fee is not advertised and you better look for it in the product disclosure statement. Note that you will be paying interest on the late payment fee also, which is another hole in your pocket.
Of course the best way to avoid fees is by reading and following all the credit card providers’ rules, making sure you pay the minimum balance, and even better paying the full balance as stated on the monthly statement this way you will pay zero interest on your credit card.
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