Understanding Your Credit Cards Terms

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Most people carry a wallet full of credit cards and say “charge it” faster than the dollar signs can ring on the cash register.But few people read the fine print as in the cardholder agreement that accompanies these pieces of plastic.The following are common terms you are likely to see on your credit card bill.Read them carefully.Misunderstanding them can cost you a bundle.

Interest Rate: Wen you borrow money,you pay a certain percentage on top of the loan for the privilege of borrowing it.That is called interest.With credit cards,your interest rate(also known as a finance charge) is the amount you are charging on the debt if you do not pay off your balance in full.Rates can vary from a low 4.5 percent to 22 percent ,or higher.Credit cards also charges compund interest.That means you pay interest on your initial purchase as well as any subsequent interest if you don’t pay off the purchase right away.And remember:Credit card interest interest is not tax deductible,which makes this type of debt very expensive.

Annual Fee: This is the amount some companies charge you just to keep your credit card account active for one full year.Even if you did not make a single purchase during the year,you would still have to pay this fee.It ranges from $20 to about $75.If you pay your credit card balance in full each month,it does not make sense to use a credit card that carries an annual fee.Thanks to increased competition among borrowers,most banks don’t charge annual fees anymore.

Grace period: This is the number of days you have until you are charged interest on your purchase.The annual grace period is at least 25 days.If you carry a balance from one month to the next,you generally forfeit your grace period.New purchases are hit with finance charges immediately.The only time you get a grace period is when the previous balance on your statement was zero or you paid last month balance in full.

Minimum payments: Every month,your credit card bill lists a minimum payment due.No matter how much money you actually owe,all you must pay this month is that amount.Typically minimum payment payment is based on a percentage of your total balance due.Sounds like a good deal,right?As long as you are making those minimum payments,you’ve got those bills under control?Wrong.Lower minimum payments just keeps you in debt longer.

Penalty Fees : Paid less than the minimum amount due?Missed due date?Went over your credit card limit?You could be slapped with a penalty fee of up to $35.Some issuers actually raise your interest rate if you make late payments or if your credit rating drops due to nonpayments or late payments of other debt.

Notes: Credit card issuers are permitted to change interest rates,add late payment charges,and even shorten grace periods as they see fit.They must send you a new agreement outlining these changes,so make sure you review this information when you receive it.

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