Read the Fine Print
To avoid paying unnecessary fees and high interest rate, always read the fine print to make sure you are familiar with all the details of your credit cards. This includes knowing when your monthly payments are due, the penalty for making a late payment or missing a payment, going over your credit limit, and any additional fees.

Know the Terms

APR
Annual percentage rate or APR refers to the total amount of interest and fees you are required to pay per year on a specific credit card balance. Your APR may change, so it is important to always know your APR. The higher the APR, the more money you will have to pay on your card balance each month making it more expensive to make purchases. APR is calculated and expressed in terms of percentages.

Example
If you are charged an APR of 19 percent on a credit card you spent $300 on, you will owe $305.70 at the end of the month, not $300.  Although it doesn’t sound like a lot, it adds up. Every month you do not pay off your entire balance you are charged 19 percent on that balance. That’s why it is important to shop around for a credit card with a low APR – it can make a big difference.

Transaction Fees
Be aware of any transaction fees associated with your credit card because sometimes they are assessed when you transfer a balance from one credit card to another or when you take a cash advance from an ATM.

Finance Charge
The dollar amount of interest and other fees (transaction fee, balance transfer fees, etc.) charged by credit card companies each month are also called finance charges. These finance charges may be assessed each month for as long as you have your card, and are usually expressed in terms of actual dollar amounts (i.e., $50 per month on a $10,000 loan).

Annual Fee
Some credit card companies will charge a fee every year for using its services. This fee will appear on your credit card statement once a year. You may be required to pay this fee even if you never use the card for any purchases.

Over-Credit Limit Fees

Even though you’ve reached your credit limit, you will likely be allowed to make additional charges and will then be assessed an over-limit fee each month until your balance is brought under the card’s limit. Most issuers charge a flat fee of $29 to $39. Some charge a tiered fee based on the amount of the balance.

Credit Limit and Availability

Several issuers start credit card cardholders with a credit limit of $250. However, after all of the fees are assessed, you will only start with $50 worth of available credit.

Example:

If you decide to take your friends out to celebrate your new credit card and spend $55 on dinner, guess what? You’ve just gone over your credit limit! Now be prepared for a penalty fee and usually a jump in your interest rate, too. Furthermore, you must make payments on your account to free up additional credit.

Default Interest Rates

A credit card company will charge an interest rate as a penalty for making a late payment or for paying less than the minimum payment required. Late payments or paying less than what the credit card company requires, depending upon the default rate set by the card issuer, will result in the interest rate doubling, or in some case, tripling. The higher rate will apply to all future purchases and to any balance already on the card.

Universal Default Fee

Some lenders or creditors will raise your interest rate if you are more than 30 days late on any payment to anyone, even if you always pay your credit card bill on time and in full to other creditors. As seen in the following example, when you’re late on Card 1 with a payment, that issuer can, and usually will, exercise its right to increase your interest rate and many times even the minimum payment due.

Example 

BUT… just because you were late on the one card, if Card 2 and 3 use Universal Default and choose to exercise their right, they too can increase your interest and even your minimum payments.

Low Interest Introductory Offers

Low introductory offers have a low APR on the credit card for a certain period which can vary from around 5 percent all the way down to 0 percent, and can last from 3 months to a year. The benefit of having a low APR is that you will pay less interest on the credit that you use. If you can get a 0 percent APR offer then you are effectively getting your credit for free during the introductory period. However, you must know in advance when the interest will be increased to a higher rate and how much it will increase. Introductory rates usually are raised to a significantly higher default rate if just one payment is missed.

Although these offers can save you money, they are only temporary. Be diligent by knowing when and why these rates can change and what the rate will be after the introductory period expires.

Bait and Switch

Issuers often offer “pre-approval” of other credit cards through the mail or Internet. The majority of these applications are denied by creditors who often substitute these offers with much less attractive offers based on credit worthiness. Cardholders end up with a credit card they thought would have a fantastic rate, activate and use it, only to find out when they receive their first statement that it wasn’t what they thought.

Cash Advance Fees

The interest rate on cash advances is generally higher than the interest rate charged on purchases made with the card. Cash advances typically have a one-time fee applied at the time the money is issued, are usually assessed higher APRs, and are granted no grace period. When you make your credit card payments, the card issuer will apply your payments to the lowest interest rate items first, allowing the debt to mount on the higher interest items, such as cash advances, until the balance is paid off. Cash advances should be used only for emergencies.

Remember, protect yourself by reviewing your credit card agreements carefully before applying for and using a card and check your statement each month to make sure you understand the charges.